Of course the question that now comes up is, what do you mean when you say you let it dry and sanded?
Wood is made up of strands of intertwined cells running length wise along the grain of the wood, think day old spaghetti left to dry in the pot . Well, mostly anyway.
Mill wood and you leave some of these strands shaved off short.
When wood is dampened the cells absorb water and swell. When it dries it shrinks back. However, these severed strands, with nothing attached to pull them back, remain standing and make the fuzz.
Now, if you actually SAND the wood you not only shave off this fuzz but you also sever new strands. The whole thing becomes a self perpetuating process. Think of it as a government program, the problem never gets fixed it just keeps on growing.
What you want to be doing is just ever so lightly scuffing or slicing off those nasty little fibers with as little impact as possible on the underlying wood.
Note, if you are not staining but are using a water based finish pre dampening isn't necessary. Just apply a wash coat of the finish and let it dry. The fuzz stands up nice and stiff and the dried finish makes it's harder to accidentally sever more strands in the underlying wood.
Good luck. Hopefully that will be the problem and solution.