Prime Minister John Key says while he acknowledges the proposals for change have caused some distress at Ministry of Foreign Affairs the organisation needs to modernise.
The Labour Party says there is a major problem with staff morale because of the proposed changes and the ministry's operations are in danger of being undermined.
Labour's foreign affairs spokesperson Phil Goff says the restructuring process has been handled abysmally and has done enormous damage to staff morale.
He told Morning Report a letter from MFAT's critical trade negotiations division shows staff, including a number in top positions, are leaving the Ministry.
"Our top trade negotiator has left, the chair of the trade negotiations division has left, other staff have asked for references - they're looking for careers elsewhere.
"How could you take a well-performing ministry and turn it into a disaster in such a short period of time?"
Mr Goff said the ministry's chief executive John Allen is being used as a scapegoat by the minister for the badly handled process of cutting costs and other Government department chief executives deplore the way he has been treated.
But John Key says he is happy with the way the situation is being handled. He says the Government has been listening and has changed the original proposal.
Savings of $24m will be made - minister
Foreign Affairs Minister Murray McCully says $24 million must be cut from the MFAT budget and more economies are likely to follow.
On Wednesday, Labour said a leaked document confirmed the Government had scaled back its planned job cuts for the ministry.
Phil Goff said the ministry intends axing 146 jobs instead of more than 300 and will close just one embassy, in Stockholm, instead of the two originally listed.
Mr McCully told Morning Report the ministry has been asked to save $24 million dollars, and that will happen.
However he said MFAT chief executive John Allen thinks more savings must be made over the next few years because he wants to reinvest some of the money in modernisation projects in the ministry
Mr McCully said both of those things are likely to happen. "Certainly the budget savings that the Minister of Finance wants will be met this year and subsequent years and I think Mr Allen will also find the other economies he wants to reinvest in the ministry."
Mr McCully said the MFAT change proposals are still the subject of discussions between the ministry and the Government.
He said there will be no decisions until the Government is satisfied with the proposal, and no proposal will go to the Cabinet until he is happy with it.
On job cuts, the minister said staffing changes were not about achieving budget savings but to try to reconfigure the ministry for the future.
He said he has already ruled out outsourcing proposals that would have cut jobs of lowly paid staff in the Pacific and South-East Asia. "Its a matter of simple arithmetic to work out that they roughly halve the number of job losses."