The police raid on the home of author and journalist Nicky Hager almost derailed the Hit & Run book, which alleged an NZSAS coverup and has led to a Government inquiry.
Hager said the main source for the book went cold for months after the raid, which almost led to the book not being written.
Police today apologised and paid "substantial damages" to Hager after the unlawful search on his home in the wake of the Dirty Politics book, published in 2014.
The book detailed links between the office of former Prime Minister Sir John Key and right-wing bloggers, and detailed cash-for-blogging deals by blogger Cameron Slater.
• Police pay Nicky Hager 'substantial damages' for unlawful search of his home
• Dirty Politics: Who are the key players?
• Dirty Politics: SIS director's three apologies
• Bryce Edwards: A year of (never ending) Dirty Politics
The settlement came with the admission from police the raid "threatened his ability (and that of the wider media) to access information from confidential informants".
The High Court case taken by Hager challenging the warrant used by police found detectives have failed to tell the district court judge who approved it that Hager was a journalist entitled through law to legal protection for sources.
Police had failed to take that into account when Hager's house was searched, potentially creating a "chilling effect" that could deter people from talking to media confidentially.
Hager said the impact of the raid put off a key source who revealed the existence of "Operation Burnham", a 2010 NZSAS operation that later became the focus of Hit & Run.
"The raid and the police actions nearly had dire consequences for my work. I was already in communication with the person who would become the main source for Hit & Run.
"When the raid happened, that person was so scared I could keep our communications private, they went quiet for months.
"That's what the 'chilling effect' means - people are scared to talk."
Hager said the aftermath of the raid "threw a great big rock in the pond", in terms of having repercussions across a number of issues he was investigating.
"I knew my work was going to be hard or impossible for a time."
Hager said a number of months passed before he managed to engage the Hit & Run source again.
"And when we got back together, they talked about [the raid] all the time. Every single time we met for the following year… they were really scared and I don't blame them."
Hager said he didn't believe police intended to have such a damaging effect - but they were oblivious to the consequences of their actions.
"In their minds, they were just investigating a P lab, or their minister was very angry, or the Prime Minister was very angry."
He said he had been trying to get across to police that he respected their role in society but journalists also had a role and police needed to respect that.
Hager said he was "happy and relieved" the case was over.
He also said he believed the police complaint made by blogger Cameron Slater, which led to the raid, was "a valid complaint".
Hager said everyone was entitled to make a complaint when they believed they were victims of a crime.
The problem, he said, "was what the police did".
He said he had always been clear the book was based on hacked information around which there was such a high public interest it needed to be revealed.
Attorney General David Parker said he had no involvement with the settlement but, in his personal capacity, was pleased to see it had been made.
Parker made the comment with reference to his previous support for Hager, saying the pleasure was in line with "earlier stated views about the person who brought the skulduggery to the public's attention being targeted".
Anne Tolley, who was police minister at the time, said she had nothing to do with the raid and police had independence for operational decisions investigating criminal complaints.
"I certainly believe in free speech - both sides."
Police minister Stuart Nash said the settlement it was an operational decision between police, courts, and Hager and he wasn't involved.
Asked if the settlement ended matters, he said: "It's time for everyone to move on."
As for how police carried out investigations, Nash said: "It's not up to me how police conduct operations to keep New Zealand safe."
National leader Simon Bridges also said police act on complaints such as this with operational independence and ministers had no influence over how operations were conducted.
"If the police stuffed up and they got the law wrong then an apology is the right thing to do."
Police also apologised for getting Hager's personal information from banks and others without a warrant, and for saying he was under criminal investigation when he was not even a suspect.
This report originally stated fallout from the Dirty Politics scandal later resulted in the resignation of then Justice Minister Judith Collins. This is incorrect. Collins resigned when she was accused of deliberately undermining the credibility of former Serious Fraud Office boss Adam Feeley. She always rejected the allegations and was later cleared.