Act leader John Banks asked for a $50,000 political donation to be split into two parts so it could be made anonymously, says Kim Dotcom and one other witness.
Dotcom said the request was made on April 15, 2010, when Mr Banks was preparing to campaign for the Auckland mayoralty.
He said there were at times three other people in the room while the donation was discussed - and Mr Banks rang later to thank him for it.
The allegation comes after police were asked to investigate Mr Banks' listing of a $15,000 donation from SkyCity as "anonymous".
Political candidates are required by law to declare donations if they know who made them. Failure to do so is punishable by up to two years' imprisonment and up to a $10,000 fine.
A vacancy is automatically created if any MP is convicted of an offence punishable by two years or more, no matter what punishment they get.
In the case of Mr Banks, a conviction would place at risk his Epsom seat under the Electoral Act and force a byelection. The loss would leave the Government exposed, with its 59 votes in the 121-seat Parliament supplemented only by United Future's one and the Maori Party's three.
Last night, Dotcom spoke from his home in Coatesville, just north of urban Auckland, to which he is bailed until a hearing on his possible extradition to the US in August on charges of criminal copyright, money laundering and racketeering.
The charges followed a high-profile arrest in January, after which Mr Banks said he hardly knew the internet tycoon.
He said his contact with Dotcom was limited to a total of 20 minutes conversation and he had been to Dotcom's mansion in Coatesville only once for dinner.
But film of the event - Dotcom's birthday party - showed Mr Banks making a toast to the tycoon.
Footage showed Mr Banks raising a glass and saying, "I'm going to propose a toast to Kim Dotcom. Please fill your glasses and stand. Happy birthday and best wishes to Kim Dotcom, Mona and his family."
Staff at the mansion said it was one of three visits. The pair also met at Princes Wharf on New Year's Eve 2010 when Dotcom put on a $600,000 fireworks display.
The pair first met in April 2010 when Dotcom sent his helicopter to collect Mr Banks from Mechanics Bay in downtown Auckland.
Dotcom said the pair met in the mansion, sitting at a large square table, and chatted.
Bodyguard Wayne Tempero was present, as was one of Dotcom's butlers. His company chief financial officer also attended briefly.
"He mentioned the elections were coming up [and] he was raising money for his campaign," Dotcom said. "He said it was hard to raise money in New Zealand, the mayoral campaign was coming up and he's trying to raise funds for that.
"I kind of liked the guy. I said, 'I'm happy to help.' I told Wayne to write a cheque for $50,000.
"His [Mr Banks'] eyes got a little bit bigger at that moment."
Mr Tempero asked the chief financial officer to come into the room to write the cheque.
"John said, 'Wait a minute'," Dotcom recalled last night. "'It would be good if you could split it up into two payments of 25 [thousand dollars], then I don't declare publicly who made it'."
Dotcom said one cheque was made out in his own name, or the name of his company Megastuff Ltd, and the other in Mr Tempero's name.
"He [Mr Banks] called me a few days after the cheques entered his bank account and he thanked me personally."
Last night, Mr Banks said there would be nothing wrong with his telling people how to give anonymously.
"If someone says to me, 'How can I put money into your campaign?' what would be wrong with telling them that - if that was that case?
"I could say, 'Firstly, you should talk to people who are raising money for me. But if you want to put money into my campaign, you can put it in two ways. You can put it in anonymously or you can put it in and have it declared.' It's quite legitimate.
"If Kim Dotcom wants to put money into my campaign anonymously he is quite entitled to do it. Whether it is 1000, 5000, 50,000 or 500,000 [dollars], he is quite entitled to do it under the act.
"Nothing to hide, nothing to fear. If Mr Kim Dotcom put money into my mayoral campaign, you should tell him I'm grateful and thank you very much."
The most recent contact was through Mr Tempero, whom Mr Banks phoned for a hotel recommendation in Hong Kong last December.
Dotcom, who rented the top floor of the Hyatt there for six years, told Mr Banks it was the best place to stay. He arranged for his limo to collect Mr Banks from the airport and later to drive him to a helicopter pad for a trip to Macau.
Mr Banks said there was no issue in his stay in Hong Kong. He paid for every aspect of the trip himself.
Act Party president Chris Simmons said he had full confidence in Mr Banks. "There's a bit of a beat-up going on. It was all to do with the mayoral campaign. It doesn't have anything to do with Act."
Prime Minister John Key did not respond to calls for comment.By David Fisher @DFisherJourno Email David