"I am aware that the Salvation Army has been critical of the government in certain areas over the years, including the SkyCity convention centre, but I see no reason why this should prevent them from being contracted to provide the excellent services that they do."
He said that the ministry had clearly signalled in 2012 that it was reviewing its gambling harm minimisation services.
"This review had been on the cards for some years prior to this, as the development of the sector has to a large extent been undertaken in an ad hoc manner, with duplication of services from national providers simply not achieving best value for money that clients of services are entitled to expect," he said in a statement.
The process to decide the new contract was contestable, and decided by a panel which included three internal Ministry staff and three external evaluators from the Department of Internal Affairs, the Health Promotion Agency and a Pacific health consultant.
He said that the Problem Gambling Foundation may still be contracted for specialist services.
Green Party gambling spokeswoman Denise Roche also said that the organisation had been persecuted by National for its stance on SkyCity.
"The decision to cut its funding seems to be motivated by the fact that the Problem Gambling Foundation is actually doing its job too well," she said.
She said that the foundation had been the only group big enough to stand up to the gambling sector.
"Smaller problem gambling service providers haven't been able to challenge the gambling industry for fear of losing their funding."
The Public Service Association said it made little sense to cut the service, noting that it had provided counselling for 25,000 people over 20 years.
The announcement came after Labour MP Trevor Mallard said he believed the foundation would be axed due to its stance against the SkyCity convention centre deal.
The PGF had "made themselves particularly unpopular with the Government and with the Ministry of Health'', Mr Mallard said last night.
The foundation issued a statement saying it had been informed by the Ministry of Health that from June 30 it would no longer be contracted for the bulk of its current services.
"While the ministry describes PGF as a valued provider of quality services it has told PGF it has a superior offer for the clinical and public health services PGF provides,'' the foundation said.
"As a result, PGF will not be able to continue as the largest provider of problem gambling services in Australasia and an internationally recognised pioneer in our field.''
The decision would "silence our voice'', it said.
The PGF, which has helped counsel about 25,000 people with gambling problems over the past 20 years, has also been vocal about gambling policies.
It has 12 offices nationwide and offers temporary services in 11 other locations.
