National MP Melissa Lee says no taxpayer money was used to make a video used as a promotion for her party.
Television network TV3 has reported Ms Lee's company Asia Vision received $1.26 million from New Zealand On Air last October and that her company went on to produce and run National Party election campaign ads.
New Zealand On Air says it is looking into the allegations and action will be taken if the ads were made using funding from the organisation.
But Ms Lee, a candidate for the Mt Albert by-election, says the ads were produced for free.
Ms Lee says there was no conflict of interest between her election campaign in 2008 and an election programme produced with taxpayer funding, as an independent producer was used for it.
New Zealand On Air chief executive Jane Wrightson says Ms Lee stood aside from involvement with the publicly-funded programme Asia Downunder when she stood for Parliament so she could not exercise editorial influence.
Labour Party leader Phil Goff says there are a number of questions that Ms Lee needs to answer on the matter and Prime Minister John Key must say whether he finds her behaviour acceptable or not.