The 'holographic' projection was part of a music event called Craze Fest on Saturday in Hammond, Indiana, within the metropolitan area of Chicago, but it was shut down within minutes.
Now the company behind the presentation is threatening to sue the local mayor.
Speaking to the New York Times, Hammond Mayor Thomas McDermott said he believed Keef was "outlawed" in Chicago and so took steps to prevent the performance.
Mayor McDermott told the newspaper that he had heard Keef had recorded a lot of songs about gangs and gun violence.
Chief Keef, who has an outstanding warrant for lapsed child support payments in the state of Illinois, was originally due to perform via digital projection in a theatre in the centre of Chicago.
However, organisers were forced to move that event after intervention from the city's mayoral office.
The subsequent Craze Fest presentation was intended to be a surprise, according to the organisers, but police were made aware of the Chief Keef connection and arrived in time to shut off the display within minutes of the 'hologram' of Keef performing his track, I Don't Like.
According to Craze Fest organiser Malcolm Jones, officers shut down power for the whole event before turning the lights back on.
"The crowd were excited for Chief Keef, they had their phones out, they wanted to document the moment and once it got shut off everyone was a little disappointed," Mr Jones told the BBC.
Steven Sersic, an attorney for Hammond Port Authority, told the BBC: "The police believed, based upon information that they had and based upon the fact that there had been some violence associated with that performer in the recent past, that the showing of the hologram had the potential to incite violence."
The projection was not in fact a true hologram, but rather an illusion known as Pepper's Ghost, which uses glass or foil combined with special lighting techniques to make objects appear in mid-air.
Alki David, owner of two firms which provided technology for the projection and an online stream of the event, has expressed his anger at the police intervention.
"We're going to absolutely sue the city, sue the mayor personally and see if we can throw a lawsuit at [Chicago Mayor] Rahm Emanuel as well," he told the BBC.
David said he has spoken to Keef since the incident and says the rapper is "very laid back" about it.
"He's used to the police and city always shutting him down, that's been the case since day one," he commented.
