Labour leader Phil Goff has rejected going into coalition with the newly launched Mana Party as long as it is helmed by renegade MP Hone Harawira.
Mr Harawira left the Maori Party in February after being suspended from caucus for criticising its relationship with the Government.
He launched the left-leaning Mana Party on Saturday and announced he would force a by-election in Te Tai Tokerau, which he won for the Maori Party in 2008.
Mr Goff had previously ruled out working with Mr Harawira after the November general election.
Labour spokeswoman Vikki Carter said Mr Goff had ruled out working with the Mana Party "at this point".
He could not work with a party when its values and core policy had been shaped by Mr Harawira, she said.
"He doesn't prescribe to the values of Hone Harawira. You can't work with that.
"At this point he's ruling the Mana Party out."
Political figures including former Labour allies Sue Bradford and Matt McCarten have been tipped to take positions in the Mana Party.
Maori Party co-leader Pita Sharples earlier said he was "shocked and disappointed" Mr Harawira intends to force a by-election in the Te Tai Tokerau electorate, and says his party may stand a candidate.
Mr Harawira left the Maori Party in February after being suspended from its caucus after criticising its relationship with the Government.
He agreed to stand as an independent and to not fight his former colleagues in Maori seats but at the weekend he announced his own left-leaning party, Mana, saying he would force a by-election in Te Tai Tokerau, which he won for the Maori Party in 2008.
Mr Harawira said he would seek a new mandate. The by-election will cost about $500,000 - just months out from a general election in November.
Dr Sharples said the party's agreement with Mr Harawira was based on him continuing to represent Te Tai Tokerau as an independent MP.
"The moment he resigns (from Parliament to force the by-election), he has abandoned Te Tai Tokerau and violated the agreement," Dr Sharples said.
"So we are shocked that Hone would force a by-election costing around $500,000, and breach the agreement he made with us - especially after he told the media so clearly that he would not do that."
The Maori Party Council would decide whether the party would stand in the by-election after consulting Te Tai Tokerau members. Whatever the decision, the party was "moving immediately" to rebuild in the electorate, Dr Sharples said.
"If Hone forces a by-election, we certainly want to be ready."
Prime Minister John Key said Mr Harawira's resignation is "nothing less than a costly political stunt."
"It will frankly achieve absolutely nothing. There is no need for this by-election."
He said it was a "self-serving act from someone just trying to get profile".
"There's a lot better things for the country to spend $500,000 on."
National would not be contesting the by-election, he said.
Mr Harawira told Radio New Zealand this morning that he had not broken the agreement.
"There's nothing at in (the agreement) about new parties or about me being a leader or anything like that, that's just incorrect."
A by-election is a straight competition between candidates - unlike the general election there is no party vote.
Mr Harawira was asked what sort of mandate he would get if the Maori Party did not stand a candidate.
"They are more than welcome to stand against me if they choose to break the agreement, it's really as simple as that... We have not approached anyone to stand in any of the electorates against the Maori Party MPs.
"However if they chose to break the agreement and the deal is off, then the deal is off, and at that point I will make my decision, as indeed the party will."
Mr Harawira would come back to Parliament with an increased salary as a party leader and would have more profile and potential to participate in leaders' debates during November's election.
Party leaders are also entitled to a leader's budget of $100,000 a year and more than $60,000 for every party MP.
Mr Harawira said the funds were irrelevant. He said he was elected for the Maori Party and now needed a new mandate so the by-election was a matter of principle.
The cost of the by-election was a small price for democracy, he argued.
Mr Harawira would talk to Speaker Lockwood Smith tomorrow about the process.
Both Prime Minister John Key and Labour leader Phil Goff have ruled out working with Mr Harawira but the new Mana leader thinks that could change if his party does well in the November election.
Leading left-wing lights John Minto and former Green MP Sue Bradford were at the weekend's Mana launch but only activist Annette Sykes has signed up to be a candidate, and looks a likely co-leader. Ms Bradford said it was too early to say whether she would stand or not.
Mr Harawira yesterday painted a picture of a more left style rather than replacement Maori Party for his new vehicle, and talked about the type of Pakeha who would be involved.
Mr Goff labelled the by-election move a money-wasting stunt.