Prime Minister John Key says New Zealand will not release a $2 million fund for tourism development in Niue until the Government satisfied the money will be spent as intended.
Mr Key is on the last leg of a tour of four Pacific countries and Radio New Zealand's parliamentary chief reporter says there was visible tension between him and the leader of Niue during his visit there.
Niuean Premier Toke Talagi made no effort to hide his displeasure at what he sees as New Zealand's failure to make the $2 million available for tourism and economic development.
Mr Talagi says it is crunch time for Niue, which needs the money to boost tourism and its economy. He says if New Zealand does not trust Niue, then it should come and build the infrastructure.
Mr Key says the New Zealand Government has to justify the funding to its taxpayers.
Mr Talagi says if New Zealand fails to come to the party, Niue will look to other countries such as China for financial assistance.
A special envoy from the New Zealand Government will go to Niue to try to resolve the standoff.