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Starship Hospital has rejected New Zealand First's $158,000 donation.
NZ First leader Winston Peters announced the donation this week, as a way of paying back money ruled to have been illegally spent on the 2005 election.
Mr Peters said the money was to be used for paediatric research.
Other parties, which had paid back money to the Parliamentary Service which administered it in the first place, said NZ First's move was a political stunt.
Starship Foundation Board chairman Bryan Mogridge, who was out of the country when the donation was made, today said the board had decided to return the money.
"Starship accepted the money from NZ First in good faith and were told that the donation was legal.
"It's most unfortunate that the money wasn't given in the spirit of genuine philanthropy, but rather it appears to gain political capital and media leverage," he said.
"We have decided it's in the best interest of the Starship Foundation and the sick children of New Zealand to return the money to NZ First."
Auditor-General Kevin Brady earlier identified $1.17 million in unlawful election spending, of which Labour owed the lion's share with $768,000.
Parliament passed legislation to validate the spending but most political parties said they would pay it back, and did.
They paid the money back to the Parliamentary Service but Mr Peters said he did not want to see it lost into the coffers of the Wellington bureaucracy.
He said that by making a donation to the children's hospital, some good was coming from the "shambles".
Mr Peters has continued to reject the argument that NZ First had to pay the taxpayer money back.
"We have always contested and continue to contest the findings of the auditor-general's report against both New Zealand First and United Future because both had their expenditure pre-approved by Parliamentary Services and the Chief Electoral Office."
Green co-leader Jeanette Fitzsimons said earlier this week that everyone would be happy to see Starship Hospital get money.
"But this is not a generous gesture by New Zealand First to Starship Hospital, this is a generous donation by the taxpayers to Starship Hospital and let's not be confused about that."
ACT leader Rodney Hide said Mr Peters was grandstanding and the stunt was calculated to win public sympathy.
It was "unethical" that rather than just pay up the debt, Mr Peters was trying to gain "political capital" out of it.
- NZPA
