The legal action was brought last year before Bawi's immigration status was revoked.
A Justice Ministry spokesman confirmed he was currently receiving legal aid for a case before the courts.
NBR publisher Barry Colman said it was "unbelievable and outrageous" that the public was funding Bawi's legal battle against his newspaper.
"Here is a guy who has been kicked out of the country after having his citizenship revoked, because of immigration fraud. And all this is going on for months after.
"It's enough to make your blood boil as a taxpayer."
Mr Colman declined to comment on details of the case against NBR.
Barrister Colin Henry is representing Bawi and pointed out that living overseas did not stop someone from giving evidence in New Zealand, but declined to comment about legal aid payments.
He said the NBR had published suppressed details from a court case.
Bawi has previously received nearly $24,000 in legal aid for a series of court fights, such as to keep his refugee status, and criminal cases, including his bid in the Court of Appeal to overturn his immigration convictions.
He remains a 99 per cent shareholder in an Auckland car parts import-export business.
Bawi was sentenced to six months' home detention in 2008 after he admitted lying to authorities in order to gain refugee status, residency, citizenship, and a passport under the name John Jacob Abrahim Joseph.
He was later convicted of Companies Office charges after running a fish and chip shop as John Joseph.
In February, the former Iraqi lost an appeal to the High Court at Auckland against a ministerial decision to revoke his citizenship and passport.
He was in Germany and has been refused re-entry, despite having a young son here.
The Herald revealed last month that Bawi was still receiving a benefit of $360 a week, under the name of John Joseph, despite the ruling.
The story exposed an "exceptionally small anomaly" in data-matching records, a loophole which the Ministry of Social Development has since closed.
Michele McCreadie, director of legal aid services at the Ministry of Justice, said: "Anyone appearing before a New Zealand court has the right to apply for legal aid as it ensures fair access to justice. This includes non-New Zealand citizens or non-residents.
"All legal aid applicants must meet eligibility standards before their application is granted."
NOT THE MODEL CITIZEN
Born: Salam Mansoor Abdelabbas al-Bawi on October 21, 1975.
Known as: John Jacob Abrahim Joseph on April 19, 1980.
2000: Arrived in New Zealand under the Joseph identity.
2001: Granted refugee status and residency.
2003: Granted citizenship and New Zealand passport.
2006: Police discovered his original name and true birth date and laid charges.
2008: Sentenced to home detention after pleading guilty.
2010: Convicted of Companies Office charges and fined $2000.
2011: Refugee status revoked.
2012: Citizenship and passport revoked. Still received $360 a week sickness benefit until Herald inquiries. Still receiving legal aid.
