Prime Minister Bill English says there will be no inquiry into the raid involving New Zealand SAS soldiers in August 2010, which allegedly killed civilians in Afghanistan.
Labour leader Andrew Little has quickly hit back at Mr English's "stubborn refusal" and says he has "failed to do the right thing".
Hit and Run, by journalists Nicky Hager and Jon Stephenson, alleges six civilians were killed and 15 were injured in Operation Burnham.
Mr English says Chief of Defence Lt Gen. Tim Keating has reviewed all documentation available about the operation and the executive summary of a 2010 ISAF investigation.
"I've concluded there is no basis for ordering an inquiry," he said on Monday afternoon.
Lt. Gen Keating informed Defence Minister Gerry Brownlee that the documentation "clearly shows" personnel took "deliberate and careful steps to ensure that it was conducted according to the law of armed conflict."
It also shows an NZDF legal officer oversaw the operation and "personnel took all feasible precautions to minimise potential civilian casualties and the destruction of property".
Mr English says classified video, which he will not release, confirms that NZDF personnel took all necessary precautions to ensure minimal opportunity for civilian casualties and destruction of property.
"Should evidence emerge in the future that New Zealand troops acted unlawfully, the Government would of course take every step to establish the truth."
Lt. Gen Keating has asked anyone with such information to come forward, and he has a statutory obligation to consider any new information.
"There is no evidence that this is the case, and a great deal of evidence that their family members acted consistent with the rules of engagement, and acted honourably and in the way that New Zealanders would expect."
NZDF maintains that nine insurgents were killed during the operation, while Hit and Run authors Nicky Hager and Jon Stephenson claim none were killed.
Were civilians killed during Operation Burnham?
Lt. Gen Tim Keating said in a press conference last week that civilians may have been killed when a gun misfired.
Mr English says "there hasn't been evidence that civilians were killed".
"The allegations in the book I think you'd have to discount because they appear to be about different places and different people."
When asked about what happened to three-year-old Fatima who was one of the six civilians allegedly killed in the raid, Mr English says "You'd have to ask the authors of the book."
Former Defence Minister Wayne Mapp has called the operation a "fiasco", and said Kiwis "owe it to ourselves to find out, to the extent reasonably possible, if civilian causalities did occur, and if they did, to properly acknowledge that".
Lawyers representing the villagers have also called on the Government to launch an independent inquiry.
Mr English has not spoken to anyone outside of the defence force, and says the Chief of the Defence Force is "independent, he wasn't involved in the operation".
Other allegations in the book include the mistreatment of a prisoner, and Mr English says this is still being looked into.
Labour leader Andrew Little says Mr English has failed to do the right thing:
Mr Little says there needs to be an inquiry to end any doubt about civilian deaths and protect the reputation of New Zealand's armed forces.
"The need for an independent inquiry to get to the bottom of allegations still remains despite the Prime Minister's stubborn refusal to call one. Bill English has again failed to do the right thing and call for an independent inquiry into the allegations set out in the Hit and Run book."
"The accounts depicted by the Defence Force and the writers of Hit and Run present two very different viewpoints. Somewhere in the middle is the truth, and for public confidence in the integrity of the investigation and the actions of our troops we must have an independent inquiry."
Nicky Hager says the issue will continue to boil and fester:
"Bill English is an experienced minister who knows the difference between being shown selective information by an interested party, as he has been by the defence force, and having an independent inquiry," Hit & Run co-author Nicky Hager says.
He says that it's not a rational decision based on evidence, "it is helping the military bureaucracy to avoid having to front up. It is the next step in the seven year cover up."
Mr Hager says the issue will not go away until it is properly addressed, and "will continue to boil and fester."