The Prime Minister says he has been assured by the Government's spy agency that it did not make a video recording of him addressing staff in February.
The Labour Party is calling on John Key to either confirm or deny that he made reference to internet entrepreneur Kim Dotcom and the Government Communications Security Bureau at that time.
Kim Dotcom, a German national who has New Zealand residency, is fighting extradition to the United States to face copyright, money laundering and fraud charges. He was arrested during a raid at his mansion near Auckland on 19 January this year.
The latest claim from the Labour is that a video was taken of Mr Key during a visit to the bureau while speaking to staff in the cafeteria on 29 February this year.
Mr Key has previously said he only heard about the GCSB spying on Mr Dotcom on 17 September when he was informed that it was illegal.
On Friday he said that the agency has assured him that no such video was recorded, but 11 still photos were taken. The pictures will not be released as they would reveal the identity of staff.
Mr Key says that if Labour is claiming he was fully briefed about the Kim Dotcom operation and then went out and a made a joke when he addressed the staff, that is utterly wrong.
The Prime Minister says he has tried to answer questions about Mr Dotcom and the GCSB as honestly as he can, but can't be expected to remember jokes he cracks while "entertaining thousands of people a week".
Mr Key says questions about his knowledge of the Dotcom operation relate to events that occurred months ago - and if he misses something, he is only human. He says he can't be expected to remember the jokes he cracks and makes off-the-cuff remarks all the time.
"I mean, you know, gimme a break - I go out there and speak and entertain thousands and thousands of people a week. I can be strait-laced and completely boring if you want me to be, but I don't really see how that's gonna do much. I mean, things are in the public domain all the time."
Labour leader David Shearer says John Key has still not unequivocally denied knowing about the operation before September, but is not disputing the GCSB's assurance that no video was made. He says he will not be revealing the sources who told him about the video.
GCSB director Ian Fletcher said on Thursday an exhaustive search of the agency's records has been conducted and no audio-visual record was found of Mr Key's visit in February. Mr Fletcher says an investigation is underway as to whether there has been "an unauthorised disclosure of information".
Political commentator Colin James says the fact that someone from the GCSB may have leaked information to the Labour Party is a serious matter. Mr James says the issue of when John Key first heard that the bureau was spying on Mr Dotcom demonstrates a lapse of memory that should not be expected of a Prime Minister.
Role of security boss questioned
The Green Party says the performance of the Inspector-General of Intelligence and Security over the Kim Dotcom affair shows he is not up to the job.
Retired judge Paul Neazor says the Prime Minister has never questioned if he is doing a good job and won't be stepping down over the GCSB's operation against Mr Dotcom.
But Green co-leader Russel Norman says he is concerned about the effectiveness of Justice Neazor's oversight of the spy agency - and in particular, three other cases of potentially illegal spying that arose after a recent review of the GCSB.
Dr Norman told Radio New Zealand's Checkpoint programme on Friday there are things that the Inspector-General needs to tell the public.
"We'd like to be hearing the specific dates when the GCSB was found to be acting unlawfully, we'd like to be hearing a better explanation of why the GCSB has been operating unlawfully and spying on New Zealand residents."