Langley said Corrections will be allowing Smith to retain the toupee under certain conditions while he is housed in his "current security environment" at Auckland Prison.
"The conditions are designed to ensure the safety, security and good order of Auckland Prison. More specific details about the conditions cannot be provided to protect the prisoner's privacy," he said.
Corrections also decided today to file an appeal in the Court of Appeal against the High Court's decision.
The department's appeal is against the legal reasoning in the High Court's decision. The appeal relates to the process prison decision makers would have to follow to ensure decisions made in relation to prisoners comply with the New Zealand Bill of Rights Act 1990. This includes, but is not limited to, a prisoner's right to freedom of expression.
"Corrections has concerns about the precedent-setting nature of the High Court's decision and wide-ranging effect it could have on the department's future administrative decision-making abilities," Langley said.
"The decision with respect to Mr Smith's hairpiece was separately taken and that particular decision is not the subject of the department's appeal."
Representing himself in court last month, Smith said the days after he was returned to custody were among the lowest in his life because New Zealand newspapers ran pictures of him appearing bald on their front pages.
"I felt belittled, degraded and humiliated," he said.
He told the court he began going bald in his early 20s and hairpieces gave him the confidence to present himself in public.
Smith argued prison authorities had not given him a valid reason for why he could not wear a hairpiece and used exaggerated concerns about security to justify their decision.