The Defence Force will convene a Court of Inquiry into an allegation that military police unlawfully detained a man.
And police say while the man was detained - there is no evidence of a criminal offence and the military officers were acting in "good faith".
He was parked in the Kahuterawa Reserve on May 7 last year when two military officers approached.
The man was driving a car owned by a relative who is a member of the New Zealand Defence Force but was not present.
The officers told the driver they suspected illegal activity and alerted police.
Military police have no power to arrest civilians outside NZDF-owned property.
The man claims that he and his passengers were "forcibly detained" until police arrived - and intimidated by the officers who stood on either side of the car "restricting" the occupants from getting out.
He subsequently complained to police and the NZDF saying the officers' actions amounted to kidnapping.
"This incident was intimidating to all of us," he said.
"We were all fearful of what was about to happen ... They did detain us and they are not allowed to do that - end of."
The man and a passenger were charged with drug-related offending.
The man's charges were later dropped and the passenger provided an affidavit to the court stating he did have drugs in the car but that was not known to the others present.
The Defence Force refused to review the alleged incident, saying staff acted within the law and "appropriately".
However, Defence Minister Peeni Henare has confirmed an inquiry is under way after he received the complaint.
Henare said the allegations were "significant" and would be "treated seriously".
This week a spokeswoman for the minister confirmed the investigation was ongoing - and further action had been started.
"And a Court of Inquiry is being convened in accordance with the Armed Forces Discipline Act 1971," she said.
"For privacy reasons we cannot provide any other information."
The man complained to Henare last year after getting no response from previous minister Ron Mark.
He was disappointed the process was taking so long but pleased his concerns were being taken seriously by the NZDF.
He was "disgusted" by the response from the police.
After chasing them up for months they finally spoke with him last month and he provided a formal written statement.
On Tuesday the officer dealing with his case told him by email that no action would be taken.
He ruled that the man had been detained but there was no criminal element.
Effectively, he indicated the military officers were entitled to detain whoever they liked if they suspected a crime was being committed - just like any member of the public could.
"Having reviewed all information available to me, I cannot establish evidence of an offence having been committed against you," said Detective Tony Flaus.
"Any member of the public that detains a person for the purpose of waiting for police to enforce the law is not an offence.
"The only offence that could be considered in relation to this incident is kidnapping, as it relates to a detention without consent.
"However when considering the offence of kidnapping, this particular example does not meet all of the required ingredients necessary to prove an offence."
Flaus went on to say the court would not consider detaining persons suspected of committing a crime as kidnapping.
"The detention was done so in good faith and for the purpose of allowing police to enforce the law," he said.
"The actions of the military police were reasonable in the circumstances.
"The detention was minor in that there was no force used, no physical restraint, no duress and there were four people in the four-door vehicle with only two Military Police present."
Flaus said there was a "material difference" in the statements from the man and the military officers involved.
"Therefore, police shall not be investigating or charging any person in relation to your complaint and it shall now be filed with no offence having occurred."
The man was angry his complaint had been dismissed by police.
He said if it had been him detaining the officers he would almost certainly have been charged and convicted.
He hoped the Court of Inquiry would get to the bottom of the alleged unlawful activity.