The ACT Party's president says he was mistaken to confirm that John Banks suggested to internet millionaire Kim Dotcom to split a $50,000 donation into two lots of $25,000.
Chris Simmons says he has never discussed that specific matter with the ACT leader and has apologised to Mr Banks for his comments.
John Banks faces a police investigation into allegations that he knew Mr Dotcom and SkyCity had made donations to his 2010 Auckland mayoral campaign, despite listing them as anonymous. Mr Banks says he has acted legally and Prime Minister John Key accepts his word.
The minister has been under pressure to stand down during the investigation.
During an interview on Radio New Zealand's Checkpoint programme on Wednesday evening Chris Simmons said John Banks had suggested that the Dotcom donation be split.
However, an hour later he said he had not meant to imply that - even though he clearly says so in the interview.
Mr Simmons said he has only ever discussed in general terms how John Banks raised money for his mayoral campaign.
He said his comments were made in the knowledge that, under the Local Electoral Act, local body candidates can approach people for money.
Mr Simmons said he remained confident that Mr Banks acted within the law. He does not believe the affair is damaging the ACT Party and there is no need for Mr Banks to stand down as a minister.
"I have every confidence that John has run by the letter of the law. He has said on numerous occasions he has nothing to fear and nothing to hide and I believe that completely."
Mr Simmons said the mayoral campaign returns were filed in absolute good faith and Mr Banks signed them in good faith. He said if ministers were stood down every time an allegation was made, most would be stood down.
Labour claims Dotcom helped Banks get hotel discount
The Labour Party on Wednesday made a new allegation in Parliament that Kim Dotcom helped John Banks get a discount at the Hyatt Hotel in Hong Kong recently.
The latest allegation comes as Opposition MPs continue questioning Prime Minister John Key about Mr Banks's links to Mr Dotcom.
During Question Time in Parliament, Labour MP Trevor Mallard asked whether Mr Banks had raised with the Prime Minister's office that Kim Dotcom had got the minister a discount at the Hyatt.
Mr Key replied Mr Banks had given an assurance that he had paid all expenses related to the Hong Kong trip.
On Wednesday evening, John Banks released his credit card statement from his stay at the five-star hotel, showing that he paid the going rates for a standard room at the time. Mr Banks says he got no special rate whatsoever.
Kim Dotcom, a German national who has New Zealand residency, is facing extradition to the United States to face charges of internet piracy relating to his file-sharing website Megaupload.