The Mental Health Foundation has hit out at David Seymour for what it calls a "stigmatising" letter he sent to constituents in Epsom.
The ACT Party leader's letter was sent earlier this month, and was about a proposed new state housing complex.
It mentioned that future tenants could "have social and mental health issues", and "will need to have special support measures in place".
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The letter asked members of the community to attend a meeting on May 16 to learn more about the proposal for the Banff Avenue site and speak to Housing New Zealand staff.
The Mental Health foundation has since claimed his comments were "irresponsible".
"Stigma and discrimination are two of the biggest barriers to recovery for people living with mental illness," it said in a statement on Tuesday.
"Mr Seymour's letter and comments serve only to reinforce negative stereotypes and portray people living with mental illness as a public nuisance, or something to be feared.
"It is simply irresponsible, incorrect and disrespectful to continue to feed into the misguided and sensationalist narrative that people living with mental health problems are inherently unsafe to be around."
However, Mr Seymour says the Mental Health Foundation is simply "grand-standing".
"It can be perceived in that way by people who choose to be perpetually offended," Mr Seymour said.
The politician added the foundation have not talked to him or sought to understand the issue, but were simply looking for publicity.
Mr Seymour said he mentioned in the letter that there would be people with mental health issues as it's "one of the facts that is relevant to this development".
"Housing New Zealand do have people who have mental health challenges who live in their dwellings," he said.
"It's a relevant fact because people in this area have been victimised by anti-social behaviour by people with and without mental health problems for decades."
Some examples of such behaviour were public urination and women being grabbed.
"People quite rightly want to know what Housing New Zealand will do to manage these risks."
But the Mental Health Foundation said Mr Seymour is reinforcing prejudice against people who live with a mental illness, rather than working towards being understanding and supportive.
It adds people who live with mental illness are more likely to be subject to violence than to be perpetrators.
"People living with mental illness deserve to be accepted, they deserve to live in our communities and be supported by their friends, whānau, neighbours and local MPs," the foundation said.