Child, Youth and Family is investigating how private information ended up in the hands of a woman who it says is blackmailing the social welfare agency.
It says a document was mistakenly sent to a woman by a staff member.
The head of CYF, Bernadine Mackenzie, says the recipient of the document is refusing to destroy or return it.
She said the woman is demanding that Child, Youth and Family return one of her children to her care in exchange for the document.
Ms Mackenzie told Radio New Zealand's Checkpoint programme on Tuesday the woman has been served with an order from the Family Court prohibiting the publication of the information.
The agency is now investigating how the information was sent out mistakenly in the first place.
Social Development Minister Paula Bennett says she believes the mistake was made in human error, which she accepts can happen in such a large department.