The police found there was insufficient evidence to prosecute for knowingly filing a false return and that the time to bring lesser charges had run out.
Judge Gittos said in his decision that unchallenged evidence showed Banks knew of both donations and must therefore have known they could not properly have been recorded as anonymous.
At issue was whether Banks knew the donations were falsely recorded on the return, which he claimed not to have read.
"Minimal attention to the form would be required to see whether two $25,000 donations from Mr Dotcom's company had been correctly attributed," Judge Gittos said.
He said he was satisfied sufficient evidence had been presented to commit the defendant to trial, "and he will be committed to trial accordingly".
Outside the court, Mr Banks said he had not done anything wrong and would continue to fight the charge. "There are many more steps that we can take and a number of options that we can pursue, and at the moment we're looking to do that," he said.
While Mr Key continued to back Mr Banks' assertions he'd complied with the law, he agreed with the Act leader that "it wasn't possible for him to stay as a minister while he now potentially faces a court action".
Conviction for knowingly filing a false return carries a maximum penalty of two years in prison or a fine of $10,000. Under electoral law, a parliamentary seat is vacated if an MP is convicted of a crime punishable by imprisonment for a term of two years or more.
Mr Key said he had discussed Mr Banks' next steps with him which could include appealing against the District Court's decision to send him to trial.
"If he was to appeal to the High Court and they were to overturn the District Court's decision this afternoon, or if he was to go through the court case and successfully defend that, then it would be my expectation he would be returned as a minister."
However, he accepted that might not happen before next year's election.
Labour leader David Cunliffe said the charges against Mr Banks and his resignation meant the National-led Government was becoming more and more unstable.
"This is a Government that is looking increasingly out of touch ... and this is a further development that happens when governments are starting to fall apart."
NZ First leader Winston Peters said the court decision and resignation had serious implications.
"The instability of this Government just grows."
Mr Key said Mr Banks' resignation made absolutely no difference to the Government from either a voting or stability perspective.
