Key Points:

The Prime Minister gave cautious support to Winston Peters last night as fallout from his about-face on his $100,000 donation continued.

Helen Clark also risked a backlash from the volatile New Zealand First leader and Foreign Minister by publicly saying that the Owen Glenn email the Herald published had been "right" in that Mr Glenn believed he had given money to Mr Peters.

Mr Peters has repeatedly said the paper was wrong and accused it of lying - as recently as yesterday morning - despite his bombshell admission on Friday.

Mr Peters, having repeatedly denied ever receiving a personal or political donation from the Monaco-based expatriate billionaire, said that night that Mr Glenn had paid $100,000 towards the legal bill for his Tauranga electoral challenge in 2005.

Mr Peters said his lawyer, Brian Henry, revealed to him the identity of the donor that evening.

Asked if Mr Peters' story was credible, Helen Clark said yesterday: "I'm in a position that Mr Peters is an honourable member [of Parliament] and I must accept his word unless I have evidence to the contrary."

She noted that Mr Henry backed what Mr Peters had said, and he had professional obligations to the Law Society.

The donation issue arose in February and flared when, 10 days ago, the Herald published an email from Mr Glenn in which he said to his public relations agent that he had donated to NZ First.

Yesterday, under pressure in a radio interview, Mr Peters again referred to the Herald as "liars".

Helen Clark, when asked if she backed Mr Peters' view of the paper as "liars", said: "Clearly the New Zealand Herald was right that money had gone from Mr Glenn to what Mr Glenn believed was Mr Peters."

She said there were three possible avenues for the donation. The first two were to the party or to Mr Peters personally, which he had ruled out.

"The third, which is now obvious, is to legal costs, legal fighting fund, legal defence, however one terms it."

Mr Peters had argued that he did not personally benefit from the donation.

He also said on Radio NZ's Morning Report yesterday that he'd had legal advice that he did not have to make a declaration of the donation under the MPs' register of pecuniary interests.

Act leader Rodney Hide yesterday lodged a contempt of Parliament complaint with the Speaker over the non-disclosure of the donation.

The Office of the Auditor-General indicated last night it would wait to see what Parliament did - notably on the question of whether Mr Peters should have declared the donation under Parliament's or ministerial rules - before considering stepping in.

National leader John Key has urged Mr Peters to apologise to the Herald and to the public.

"Clearly he has received a donation and he has either misled the public wittingly or unwittingly.

"If he did not know about the donation until last Friday, he unwittingly misled the public.

"But there is no question that he has received a donation by his own admission which, if he hadn't received, he would have been forced to meet the liability of those legal bills and therefore it has been of benefit to him."

* Unanswered questions
What did Owen Glenn think he was giving $100,000 to?

Did Owen Glenn ever talk to Winston Peters about making a donation?

Who told Winston Peters' lawyer to approach Owen Glenn for a donation?

Why did Winston Peters not ask his lawyer if the rumoured Glenn donation had paid legal fees before Mr Peters held up the NO sign?

Why did Winston Peters' lawyer not tell his client about the donation when Glenn was publicly lobbying for the Monaco job in February?