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Documents show former Cabinet minister Shane Jones was told a Chinese businessman was under criminal investigation for alleged identity fraud at the time Mr Jones approved his citizenship application.
Mr Jones approved Yang Liu's application in August against the strong advice of officials. Mr Liu has donated money to Labour and National in the past and received letters of support from MPs of both parties.
Papers released to journalist Ian Wishart under the Official Information Act show the extent of officials' concerns in their recommendation to Mr Jones.
In his weekly newspaper TGIF, Wishart quotes parts of the report which show Mr Jones was told Mr Liu was under criminal investigation by Immigration's fraud unit over allegations he had used a false identity, including obtaining two false passports.
Under another name, he was also subject to an Interpol "red notice" for a warrant of arrest in China for alleged serious financial fraud.
The report advised against accepting the application, saying "it is considered that Mr Liu does not meet the good character requirement" to be eligible for citizenship.
Mr Liu arrived in New Zealand in 2002. His citizenship application had been delayed since 2005 while officials looked into his background and queried the apparent use of multiple identities.
In the newly released papers, one official notes that despite being under multi-agency inter-governmental investigations, Mr Liu had insisted his application be considered at that time.
The Internal Affairs papers also reveal former Cabinet minister Chris Carter had written a letter to support Mr Liu's application.
Yesterday, Mr Jones declined to comment. A spokesman for Labour leader Phil Goff said he had no comment and would wait for an Immigration report on Mr Liu's identity.
An Immigration Service spokesman said its investigation into Mr Liu's identity was well advanced.
