Ardern said her grandfather refused to leave and was allowed to stay the night.
She did not blame the people working in the health system who were "doing a fabulous job", but the hospital had no room for him.
"Waikato Hospital is full. It's full. And that's the kind of choices that the people working in our system are having to make.
"That is not good enough and that is what this election is about. Turning that around.
"New Zealand can do better than that. Our health service can do better than that."
Speaking later today she confirmed a family member was involved in a discussion to allow her grandfather to remain in hospital.
She said the fact Waikato Hospital could not take admissions suggested the district health board was under-funded.
"They essentially are full. And it just happens to be that my grandfather was one of many people who'll be experiencing the impact of that, including staff who work there."
Asked to respond to Ardern's criticism, Brett Paradine, executive director Waikato Hospital Services, said the hospital had been full for the past few days "and our Emergency Department has been overloaded".
"The hospital is now back on track but still very busy, as is our Emergency Department."
Paradine said he couldn't comment on an individual patient.
"It is our expectation not to discharge anyone without making a clinical assessment that they were safe to discharge and that they had the appropriate supports in place.
"We are sorry that this experience has caused concern for the family and we would be happy to talk to them and look into the circumstances around this situation."
Ardern was speaking to GreyPower members about Labour's plans for the mental health and health system.
Waikato Hospital has confirmed it is "overloaded", writing on Facebook yesterday: "Today our Emergency Department at Waikato Hospital is in overload and Waikato Hospital is full.
"Because of this situation and for the safety of our patients we have to reschedule patients for elective surgery that are not cancer or emergency-type surgeries."
Labour leader Jacinda Ardern has come out swinging at what she called National's campaign of "fear and lying".
A Newshub poll last night showed Labour progress up the polls had stalled and National had gone back up to 47 per cent.
That followed concerted attacks by National and leader Bill English about Labour's "vague and confusing" policies on tax.
National launched another social media ad on the topic this morning, and an angry Ardern retaliated while speaking to an audience of about 600 at Nelson GreyPower.
"In recent weeks I've become more and more aware that this has become an election of two halves where on the one side we have fear and scaremongering and, to be honest, lies.
Read more:
• 'Let's tax this': National goes negative in new campaign ad
"And on the other side we have ideas and solutions and policies for the future that will return New Zealand to the country that I know and believe it can be.
"I want to draw a line in the sand around the fear, the scaremongering and the lies."
Ardern rounded first on Steven Joyce's claim of a $11.7 billion hole in Labour's fiscal plan.
She said addressing the claim has taken time out of the campaign and has not stacked up. She stood by Labour's plan, she said.
She also said National was scaremongering in claiming Labour planned multiple taxes "that do not exist".
"I'm calling time on the fear and the lying because instead we need to ask the question 'why are we having this conversation?'
"We need to talk about housing in this country. We need to talk about the fact for the first time we are facing a generation who we won't necessarily be able to say will be better off than the last. And that's always been a source of pride for this country."
She told the audience the reason for having a working group on tax was to address the issue of housing.
She defended her decision to hold the working group and refusal to rule out introducing taxes such as capital gains in her first term.
"We have to do everything in our power to turn that around because I will not be a Prime Minister that stands by and gives up on home ownership in this country."
She said it was ridiculous of National to claim Labour could introduce an inheritance tax.
Until Monday, Ardern herself had not ruled out an inheritance tax but said it was not what Labour was looking at.
