The casting of the South Indian actor prompted Sonu Sood, the original film's villain, to leave the cast, according to the Hindustan Times.
Raj told the paper: "He's a darling. He isn't afraid of anyone. He let me be myself when we were shooting for Wanted. I'll be playing the villain opposite him and am looking forward to a crackling on-screen rivalry with him.
"I don't care about other people's insecurities. Producer Arbaaz [Khan] wanted me, so I'm here. If someone has a problem with that, they need to deal with it. What can I say?"
Raj was last seen in Ajay Devgan's blockbuster Singham. He is also currently working on his bilingual directorial debut which centres on a child who aspires to become like the famous cricketer Mahendra Singh Dhoni.
It was reported last week that Khan and his producer brother Arbaaz have dropped the entire production crew of the original film from the sequel for "creative reasons".
Watch a trailer for Dabanng below: