Prime Minister John Key says immigration officials are looking at the way they dealt with the New Zealand residency application of German millionaire Kim Dotcom.
The co-founder of file-sharing website Megaupload and three colleagues were arrested in Auckland on Friday and have been charged with money laundering, racketeering and copyright piracy.
The FBI has been investigating Megaupload which the United States accuses of pirating films and other content, costing copyright holders more than $US500 million in lost revenue. The US is seeking Mr Dotcom's extradition.
The Labour and New Zealand First parties are calling for an inquiry into why Kim Dotcom, 38, was granted residency despite declaring previous convictions, including one for fraud in Germany.
Immigration New Zealand says Mr Dotcom was granted residency in 2010 under the Investor Plus category which allows people to gain residency if they invest $NZ10 million in Government bonds.
In 2011, the Overseas Investment Office turned down Mr Dotcom's request to buy the mansion he has been leasing in Coatesville in Auckland's northwest.
Prime Minister John Key said on Tuesday that immigration officials are conducting an internal review of Mr Dotcom's case.
"The issue is whether he met the good character tests and, according to the law the way it's applied, he did.
"Immigration are looking at his particular file just to check that they appropriately applied the rules and ticked all of the right boxes."
Mr Key says the Immigration Minister at the time, Jonathan Coleman, was told about the application, but the decision to grant Mr Dotcom residency was made by officials.
Labour Party leader David Shearer says there definitely are some questions to be answered.
"How do we allow somebody like this to come in that had convictions in other countries.
"At the same time, he's not being permitted to buy the property that he's been using and I think that brings up some questions - what is the policy, what did the minister see?"
NZ First call to release all documents
New Zealand First is calling on the Government to release all documents relating to the decision to grant Kim Dotcom residency.
Leader Winston Peters says Mr Dotcom was known to have previous convictions and had a reputation for being a notorious computer hacker, yet immigration authorities in New Zealand still allowed him in.
Mr Peters says Prime Minister John Key has a duty to tell people whether any National Party MPs made any representations in support of Mr Dotcom's application.
New Zealand First will make the documents public as soon as they are made available to the party, he says.