Gaynz.com reported on Wednesday that Corrections had confirmed it was being excluded from the parade on February 20 but staff could march out of uniform.
Auckland Pride Festival board member Kirsten Sibbit told gaynz.com the decision had been a difficult one "because it has implications for the staff who work for Corrections and who are part of our community".
The Corrections decision, she said, was "a board decision, based on a review of their policies, material that we researched ourselves and the experience of people that work with transgender individuals in prisons".
Ms Sibbit said the festival wanted to give Corrections "the chance to give us their views before we spoke publicly".
The trans rights lobby group, No Pride In Prisons, gatecrashed last year's parade to object to Corrections presence.
In the past year there have been two serious issues involving transgender inmates. A Wiri prison inmate was allegedly raped after being placed in the mainstream prison population.
Corrections apologised to Jade Follett, a transgender inmate who faced down threats from inmates in Rimutaka prison before gaining a transfer to a women's prison.
No Pride in Prisons spokesperson Emilie Rakete said it was highly appropriate that the Department of Corrections was excluded from the parade.
She said staff could march in the parade as individuals but they did not have the right to represent an institution that facilitates the rape of their transgender sisters.
"It is beyond the pale for us to reward them for work that they might do to stop us from being raped in their custody before they actually do that work," she said.
A spokeswoman for Corrections Minister Judith Collins said while the parties were talking the minister had nothing to add at this stage.
Corrections deputy national commissioner Rachel Leota said the department has a duty of care to all prisoners.
"Corrections works with every prisoner individually to assess the most appropriate placements for them. Safety is Corrections' bottom line and we work to ensure every prisoner is placed in a safe environment.
"If a prisoner has a change of gender recorded on their birth certificate they are automatically put into a prison based on that gender," she said.
There are about 20 transgender prisoners held in New Zealand prisons at any one time.
Ms Leota said when entering the prison system, prisoners are able to apply to the Chief Executive of Corrections for placement in a prison where they identify with the gender of the prisoners managed in that prison. The Chief Executive receives advice from the Director of Health Services and the Chief Custodial Officer in order to make a decision on the application.
A range of factors will be taken into account to ensure that no prisoner is put in harm's way due to their placement when the chief executive considers this application before a decision is made.
If they are unsuccessful with this application, transgender prisoners will be accommodated according to the sex recorded on their birth certificate.
No prisoner will be permitted to make an application for placement if they have sexually offended against a person of the same gender as the prisoners they wish to be co-located with.
Ms Leota said to date, the Chief Executive has received six transfer requests from transgender prisoners since the Transgender and Intersex Prisoner policy took effect in February 2014. All six of those applications have been approved. Some transgender prisoners do not apply to transfer.
