The Captain Morgan organisers are expected to establish a charitable trust, and then apply for a licence.
The department's ruling followed a complaint from a poker machine trust that reportedly argued that its business was being undermined by events like A&P; shows and trade shows that gave away spot prizes such as cars, boats and holidays. The Captain Morgan contest, and the Snapper Classic before it, have long given away cars, holidays and other valuable items as spot prizes.
Internal Affairs has accepted that catching a fish required some knowledge and/or skill, and contests would still be allowed to award prizes for the most or biggest fish caught. Prize draws had to comply with the Gambling Act 2003, however, because they involved an element of chance, and were therefore gambling.
Rob Parker, who twice won the biggest fish prize at the Snapper Classic, said the department's enforcement approach had got out of hand.
"We're talking about fishing, for crying out loud," he said.
"I've been doing these competitions for 20 years. As far as gambling goes, it's not really."
Meanwhile Problem Gambling Foundation chief executive Graeme Ramsey said it was ironic that a pokie trust had complained about events that brought families together.
"I don't think problem gamblers are going to be entering these draws," he said.
"They are going to be at the pokies, more likely."