Investigative journalist Ian Wishart is claiming a "bombshell development" in the Scott Watson murder case after the key prosecution witness gave an interview on NewstalkZB.

But that witness has dismissed Wishart's comments, saying he is simply "trying to sell books" by making "ridiculous" claims.

Ben Smart, 21, and Olivia Hope, 17, were last seen after New Year's Eve celebrations at Furneaux Lodge in 1997.

Scott Watson, convicted of murdering Ben Smart and Olivia Hope. NZ Herald file photograph via The Press
Scott Watson, convicted of murdering Ben Smart and Olivia Hope. NZ Herald file photograph via The Press

Watson was convicted of murdering the young pair.

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The case is the subject of a new true crime podcast by the Herald called "Chasing Ghosts: Murder in the Sounds" which was released at the weekend.

READ MORE: Chasing Ghosts: Murder in the Sounds

Guy Wallace was serving drinks at Furneaux Lodge on New Year's Eve 1997 and later drove a water taxi to ferry passengers to their boats after the party wound down.

He was one of the last people to see Ben and Olivia alive after dropping them at a boat with a "mystery man".

This man, whom Wallace had served drinks at the bar earlier in the night, was described as "sleazy", with unkempt, wavy hair and facial hair.

Wallace, the crucial witness, was initially shown Watson's photo at least three times and each time said the now-convicted murderer was not the mystery man.

Police then showed Wallace a new image of Watson in a montage of eight photographs.

In this new photo, Watson was caught half-way through a blink. This gave the appearance of hooded eyes, a characteristic of the mystery man's description.

Guy Wallace was the water taxi driver who delivered Ben Smart and Olivia Hope to their final destination and was a key witness during the court case that convicted Scott Watson.
Guy Wallace was the water taxi driver who delivered Ben Smart and Olivia Hope to their final destination and was a key witness during the court case that convicted Scott Watson.

Wallace picked Watson from the "blink" photograph as the single man on the water taxi.

He later recanted that selection and is adamant that Watson is not the mystery man.

In an interview for the Herald podcast, marking 20 years since Ben and Olivia disappeared, Wallace says he feels guilty identifying Watson and believes he knows who the "mystery man" really is - someone with connections to the criminal underworld and who is already behind bars.

Wishart claims Wallace contradicted himself in an interview on Newstalk ZB on New Year's Day.

Wishart said Wallace, in an interview with host Tim Dower, "named Scott Watson as the mystery man".

"Wallace told Dower just after 7am yesterday that he had seen Scott Watson near the beer fridge in the garden bar tent that night, an incident that 20 years ago he insisted was the mystery man - the killer of Ben and Olivia," said Wishart.

"The bombshell is that Wallace told Dower he remembered seeing Watson's beer in the fridge - when at trial he said it belonged to the mystery man.

"The incident was unique because bar staff were not supposed to look after customers' beers.

"This is a dynamite revelation that blows this case wide open."

Ian Wishart, investigative journalist and author. New Zealand Herald Photograph By Greg Bowker
Ian Wishart, investigative journalist and author. New Zealand Herald Photograph By Greg Bowker

Wishart has published three books on the murders.

Wishart said for the last two years he had been saying Watson was the mystery man and Wallace was "confused".

"Wallace has (on NewstalkZB) subconsciously linked Scott Watson to the mystery man in his memories," he said.

Wallace spoke to the Herald on Tuesday morning and said he stood by his evidence that Watson was not the mystery man.

He was not interested in Wishart's theories.

"He's just fishing, and he's full of ****," Wallace said.

"No, I'm not worried, he's just trying to sell a book."

Wishart denied that.

"I have just released a free 40,000 word book online about this," he said.

"I am forgoing profit so public can see the facts for themselves and have an informed debate."