Key Points:

The Department of Labour says it will not challenge a Court of Appeal ruling about an Iranian overstayer, ahead of changes to immigration legislation.

Thomas Yadegary was jailed after refusing to sign passport documents which would force his return to Iran.

He spent more than two years in Auckland's Mt Eden Prison before he was released in April 2007, after the High Court ruled it was unreasonable for him to be held for so long without charge.

Last month, the Court of Appeal upheld the decision and gave the department until yesterday to appeal the ruling. "[The department] has decided not to appeal because matters raised by the Court of Appeal ... will be addressed when the bill before Parliament is passed," a statement said.

"The bill currently provides that time spent in custody as a result of an individual's refusal to co-operate cannot, in itself, constitute exceptional circumstances justifying release, as happened in the case of Mr Yadegary."

Mr Yadegary destroyed his passport on arrival in New Zealand in 1993 and cannot be deported to Iran without one. He has said he would be persecuted for converting to Catholicism from Islam if he was sent home.