ACT leader John Banks has been accused in parliament of lying about donations he received from internet tycoon Kim Dotcom.

Labour MPs on Tuesday grilled Prime Minister John Key about the donations, trying to force an admission that Mr Banks didn't tell the truth when he told Mr Key's chief of staff he didn't know where the two $25,000 donations to his 2010 Auckland mayoral campaign came from.

Sworn testimony in a police report released last week shows Mr Banks did know, but Mr Key is still denying the MP misled him.

Labour's Trevor Mallard wanted to know why Mr Key still considered he hadn't been misled by Mr Banks "when the evidence shows that John Banks lied to his chief of staff and the media".

Mr Key said the evidence didn't show Mr Banks had lied.

"He complied with the law," Mr Key said, citing the police conclusion that there was insufficient evidence to prosecute Mr Banks over his election return which recorded the donations as anonymous.

Labour MPs shouted "he lied" as the questioning went on, but Mr Key refused to concede that Mr Banks had done anything that warranted his dismissal as a minister.

And Mr Banks came to parliament in a defiant mood.

He refused to answer questions about the affidavits in the police file, instead telling reporters: "Four months ago these politically-motivated allegations were made in parliament by the Labour Party. A team of the very best police officers went through this intensively and extensively, they weighed every word of every witness, and they concluded no charges would be laid."