Helen Clark alleged in Parliament yesterday that National MP Murray McCully had "editorial control" over controversial Exclusive Brethren election pamphlets.
However, she was forced to withdraw the claim after Mr McCully said it was untrue.
The accusation came as National continued attacking Labour over its election spending, the subject of
two police investigations.
National is facing one spending investigation by police.
The police are also investigating the Exclusive Brethren pamphlets, which were distributed before the election, attacking the Green Party and urging voters to change the Government. The Chief Electoral Officer referred the pamphlets to the police.
Labour has been highlighting that inquiry to deflect attention from those it is undergoing.
National leader Don Brash questioned Helen Clark again yesterday, demanding to know when she would repay the $446,000 his party claims Labour misspent.
She replied to gasps in the House: "When the Leader of the Opposition cares to engage with members of his party on what is attributable, he may want to raise with them why they did not declare up to $1 million of Exclusive Brethren spending, especially because Murray McCully had editorial control of it."
Many points of order followed until Mr McCully raised one of his own.
"I do take offence at the suggestion that I believe the Prime Minister was making. I can assure her it is untrue, and I would like you to suggest to her that she take the appropriate action."
Helen Clark withdrew the allegation. "The suggestion I made was that Mr McCully was not only well aware of but had some input into the publication of the leaflets. I am prepared to accept the member's word that that was not true."
New Zealand First leader Winston Peters went to Helen Clark's aid.
"Will the Prime Minister advise the House as to whether or not she has received reports of a failure to declare expenses, for example over half a million dollars by the Exclusive Brethren Church that was in daily liaison with the National Party?"
Helen Clark said she was aware the Chief Electoral Officer had referred the pamphlets to police. "Those pamphlets were not put in National's return. Estimated publicity $1 million, not included Dr Brash."
