Private investigator Wayne Idour last night admitted the Exclusive Brethren religious group paid him to spy on Labour MPs.
But he said he also believed Labour spied on National and the Exclusive Brethren.
His admission about his role confirmed allegations by Prime Minister Helen Clark that he had previously denied.
Last night, Helen Clark rubbished his counter-claims as "complete and utter drivel".
"This is the same fellow who misled TV reporters last night then comes up with this concoction," she said.
"This is scumbag politics. It is just a smear by someone who has been found out."
Mr Idour is a Dunedin investigator and former police officer.
He made his claims - and his admission - last night in an interview with John Campbell on TV3.
His confirmation of having been hired by the Exclusive Brethren reversed denials yesterday and the day before.
He explained his switch by saying the first rule of his industry was to protect clients.
He said he had not been hired directly by the Exclusive Brethren, but had been subcontracted.
He had been asked to "make inquiries into unlawful activities of the Government, the Labour Party in general, to find out what I could and report back".
He believed the information he gained about Labour was to have been passed on to a media outlet. He did not believe it was to have been given to the National Party.
"I am just disgusted at what I have been uncovering. A lot of the information I have been uncovering about the Government is very dishonest and if the public knew - and they have a right to know - my view is ... there would be a byelection tomorrow."
He said he had information about Cabinet ministers David Benson-Pope and David Parker and Deputy Prime Minister Michael Cullen.
"A lot of this information is not yet public. I don't want to go into it.
"It relates to the Prime Minister and some of the information relates to her husband."
Helen Clark said last night that Investigate magazine had conducted inquiries into three of the five people Mr Idour mentioned - Mr Benson-Pope, Mr Parker and her husband, Professor Peter Davis.
Investigate editor Ian Wishart said last night he had known Mr Idour for years but he had never received "anything significant" from him or the Exclusive Brethren.
Mr Idour said Labour hired a firm to go through the rubbish of National Party leader Don Brash and finance spokesman John Key - a claim supported by Mr Key.
Mr Key said last night that twice during the election campaign last year, his neighbours in Parnell had reported seeing men in suits going through his rubbish bins on the street.
Mr Idour said a contact in the industry had told him that the private investigation firm hired for the rubbish search was also following leading members of the Exclusive Brethren church to find out who they met.
And he said he knew someone who had turned down the job of trailing Dr Brash.
He said Dr Brash had been warned to "cool his heels" because people knew about his affair with businesswoman Diane Foreman.
Helen Clark said she had been told several months ago that the Exclusive Brethren had been spying on her.
She was shocked then and was shocked now.
The Brethren had "stooped to the lowest possible level" to try to defeat Labour.
She had spoken to Labour Party president Mike Williams and the chairman of the party's finance committee, and they would swear on oath that Labour had not hired a private investigation firm.
"We know of no such activity. We would not authorise such activity. We have not authorised such activity."
National deputy leader Gerry Brownlee said last night the revelations were "utterly deplorable".
And he distanced the party from the Exclusive Brethren.
National had never been involved in trailing people or getting information from third parties that did.
"This is a very, very unsavoury turn on the New Zealand political scene," he said. "New Zealand politicians are very available to the public and lead public lives. They are entitled to their privacy."
Responding to Helen Clark's call to renounce the support of the Exclusive Brethren, Mr Brownlee said National had made it clear on many occasions that the Brethren had nothing to do with the National party.
"The whole association has been created by others and I have described them before as being a 'thorn in the side'. And that's where things remain."
Colourful life of investigator
Wayne Idour has a colourful history. In 2002, he was a prosecution witness in a case against Constable Keith Abbott, who was charged after the fatal shooting of Steven Wallace in 2000.
It emerged Mr Idour was pursuing a civil prosecution against police for malicious prosecution, relating to a charge - on which he was acquitted - of attempting to dissuade witnesses from giving evidence in a case he investigated.
He later won a defamation case and was awarded $230,000 after a Sunday Star-Times article criticised him and two fellow former police officers.
Mr Idour, a former police sergeant, retired from the force in 1992 on medical grounds. He was hired by David Bain's defence team to help Bain, convicted of killing his family in 1994, get a hearing at the Privy Council.
He was named this week by TVNZ as the man hired by the Exclusive Brethren to get information on Professor Peter Davis' private life.