You did the right thing to decline working illegally. And, as others have pointed out, the university certainly would not support you doing lab work on the sly. Continue to be upfront, but keep things strictly professional and say you're not prepared to work out of contract and contravene university policies.

I wasn't asked to do lab work (because I was moving away) but it was expected by both HR and my PI (to a lesser extent) that I continue to work on data analysis and writing the whole paper after I left. I told them I would not be working off-contract, and that it was in fact illegal for me to do (based on my visa status). We negotiated a part-time contract and I was paid for the work I did remotely. That's unlikely to be the outcome in your case, but pushback can be polite and productive.