Documents show candidate praised Dotcom's wife while discussing $50,000 grant.
John Banks' mayoral campaign team drew up a list of 10 rich donors to target for $25,000 each, new police documents show.
And Mr Banks asked mutli-millionaire Kim Dotcom for two payments of that exact amount so that he would not have to declare where they came from, the internet tycoon told police.
Dotcom said Mr Banks told him: "I want to help you, Kim, and I can help you more effectively if no one knows about this donation."
The documents from the police inquiry were released last night under the Official Information Act. They give an insight into the way Mr Banks' team raised nearly $1 million during his campaign for the Auckland super city mayoralty in 2010. He lost the bid but is now the Act MP for Epsom and Minister for Small Business.
No charges were laid against Mr Banks. Police found that although he had filed a false election return, he hadn't done so deliberately, because he had signed it without reading it.
Mr Banks' electoral return for the 2010 election shows five anonymous payments of $25,000. Among them were two donations by Dotcom, who faces extradition to the US on charges of criminal copyright violation.
The figure of $25,000 is a recurring number of the campaign. It is the same amount Mr Banks allegedly asked Dotcom to make his cheques out for.
In the documents, Dotcom told police: "Mr Banks said to me that it would be better to split it into two cheques for $25,000. I asked him why. He told me it was because then he would not have to declare where it came from."
Labour deputy leader Grant Robertson said there was a clear plan to cluster donations at the same level so Mr Banks could deny he knew exactly who each payment had come from.
Last night, Mr Banks issued a statement refusing interviews.
A spokeswoman for the minister said he had always stated he signed the electoral return in good faith believing it to be true and correct. "He has always believed he acted within the law."
She said the law - passed by Labour 11 years ago and tightened yesterday - was "unclear, unfair and unworkable".
"Mr Banks believes that no candidate for public office should have to go through what he has been through."
Other large donations in the campaign are also clustered. The Herald has viewed the donation return and counted 11 of $5000, three of $7500, another 11 of $10,000, three of $20,000 and five of $25,000. Only a handful of large anonymous donations are for amounts that appear in the return only once.
Witness statements released last night detail the meeting between Mr Banks and Dotcom at which witnesses say the $50,000 donation was discussed.
Dotcom told police Mr Banks and wife Amanda came to his $30 million mansion at Coatesville to have lunch with him and his wife, Mona.
According to Dotcom, Mr Banks praised Mrs Dotcom, saying: "Your wife is the most beautiful woman I have ever seen." Dotcom told police: "I was surprised he would say that with his own wife present."
Dotcom told police he initially believed Mr Banks was able to get donations of that amount under a threshold at which it should be declared.
The documents reveal it was the action of Mr Banks stated the campaign team was given advice on donation law from a legal firm brought in for that purpose.
He said the briefing led him to believe "anonymous" included someone who asked not to be identified as a donor.
He said the fundraising plan included approaching 10 people - some on the NBR Rich List - to ask for donations of $25,000 each.
The documents reveal it was the action of Mr Banks' treasurer, in accidentally listing a $15,000 SkyCity donation as "anonymous", that ultimately led to the police investigation.
SkyCity executives told police they made the donation openly after meeting a request for money from Len Brown, now the super city's mayor.
The treasurer later rang SkyCity's legal department to ask if it was an "anonymous" donation.
A friend who worked there told him it should be disguised - leading to questions when the donation to Mr Brown was later revealed.
When SkyCity confirmed it had also donated to Mr Banks, the Labour Party laid a complaint with the police.
Banks applauds changes
Act leader John Banks has welcomed an overhaul of local election rules, saying nobody should have to suffer like him over anonymous donations.
Local Government Minister David Carter announced that the donations rules for local body elections would be changed, including a ban on anonymous donations of more than $1500 and preventing candidates turning a blind eye to donations.
Auckland Mayor Len Brown also welcomed the change, but believed the $580,000 spending limit should also be reduced "so it doesn't price people out of running for mayor".
Mr Brown was criticised for using a trust to filter donations.