A second application was then made for the girls to be coached by Ngati Whakaue descendant Richard Wharerahi, but that too was declined, Mr McKay said.
However, organisers last night said that was not the case.
Jeff Green, vice-president of the Rotorua Basketball Association, which organises the tournament, said only players had to be Maori to enter.
"He wasn't turned down on the basis that he's a Pakeha coach."
Mr Green said the Maori tournament was for iwi- and hapu-based teams, and players not linked to an iwi or hapu could apply individually and be placed into teams.
Mr Green said Mr McKay wanted to keep his girls together, "and that's not the whanaungatanga of Maori basketball".
Coaches and referees did not have to state Maori lineage, he said.
"Coaches, administration, referees can be non-Maori, because obviously there's not enough of those types of people available," he said. "We have a number of Pakeha coaching teams ... In fact we've got an Asian coach coaching one of the Maori teams, so no one is being excluded because they're non-Maori."
Mr Green said the number of teams had doubled from last year, with 90 teams taking part this year, and organisers had to turn down 11 other teams because they had too many.
Mr McKay last night said he stood by his comments, saying he received an email declining entry because he was not Maori. He said he was unable to provide the email.
The rules had initially said only players had to state their whakapapa, but after his application, organisers sent back new rules "with a new clause put in".
He did not want his team members to be split up and assigned to new teams in order to enter, he said.
"I don't know if it's a personal thing or not," he said. "It's not about, to me, a black or white issue. It's about how kids are missing out who were entitled to play. They met the criteria."
Rotorua Basketball Association president Darrell Pene said the rule change was to make it clear only New Zealand Maori players were allowed to enter, after there were inquiries from Cook Island Maori.
Race Relations Commissioner Dame Susan Devoy declined interview requests, but in a written statement said she hoped the organisers could sort the issue out.
"I'm hoping organisers can keep talking with those affected so this can be sorted out because it's the kids who are missing out," she said.
Dana Stevens, father of 15-year-old twins in the team, Jodie and Brooke, said there had been a lot of animosity around the girls taking part in the tournament following their win last year.
"They didn't even really have a team, they were just invited to take part three days before the tournament so I think that put a few noses out of joint, because they won when they were just expected to make up the numbers."
The team was comprised of girls from Rotorua and Auckland, Mr Stevens said.
Mr McKay had clashed with parents of other team members in the past but was widely respected for his coaching skills, he said.
"He's a hard coach, but a fair coach and the kids respect that. The majority of girls have played for him for the last four, five years."
Chen Palmer partner James Dunne said organisations should generally stick to their terms and conditions.
Basketball New Zealand chief executive Iain Potter said the tournament was run by an associate member and declined to comment on the alleged rule change: "I think it's regrettable that kids miss out."
A spokeswoman for Sport and Recreation Minister Jonathan Coleman declined to comment.
