[crosscountry55]

No, an official cannot direct a player to sit for a prescribed length of time. He can:

A) penalize him for some kind of foul.
B) in certain circumstances, direct him to leave the game (and be substituted for) for refusing to comply with a direction ("tuck your shirt in" comes to mind). But even that action is only valid until the coach next has an opportunity to sub him back in (provided some amount of time has run off the clock).

I would totally, unequivocally choose option (A) in this case, specifically a personal (team control) foul.

Probably wise not to argue with the official in your situation, but a call to his assigner/commissioner or your league coordinator afterwards would be completely warranted.

NOTE: Nevada makes a good point. My assessment is strictly based on NFHS rules, but if league rules grant an official the kind of authority he mentioned, than the official is within his rights.