The Labour Party has accused the Prime Minister of putting Parliament's integrity at risk over his handling of the Mike Sabin case.
Mr Key said last week he first learned Mr Sabin was facing personal matters, which later led to his resignation, on 1 December.
Labour's leader, Andrew Little, said Mr Sabin then chaired a law and order select committee two days later.
He said that was a severe conflict of interest.
"Quite simply, Mike Sabin should never have been in that position... it puts the role of that select committee in peril."
Mr Little said it displayed a "cavalier attitude" by the Government towards parliamentary oversight of the police.
"We need to know that the institutions of Parliament, select committees and the way they operate are done in a way that maintains public confidence in them.
"You can't have a committee of Parliament that provides oversight for the police being chaired by someone under police investigation."
But Mr Key is standing by his decision not to stand Mr Sabin down from the role.
"Things can progress and change and ultimately things did progress and things did change, but, on the information I had on 1 December, I was happy with the decision I made."
He said he was "really comfortable" with his judgment call.
"Helen Clark had an investigation against her and she didn't stand down as Prime Minister of New Zealand," he said.
Mr Little said Mr Key knew more than he was letting on.
He wanted the Government to say if, and when, anyone was briefed by the Police Commissioner.'