The Auditor-General has deemed the Government's Ihumātao deal "unlawful" because Parliament did not approve a new spending category to purchase the land.
The disputed south Auckland land was purchased from Fletcher Building in December for $30 million. The Government said it was bought using the Land for Housing Programme, which falls under the KiwiBuild umbrella.
But the Auditor-General has investigated the deal and found that the Government ended up having to create a special spending appropriation in February because the purchase did not fit within existing housing policy.
Newshub revealed the Government was advised by Treasury not to use the Land for Housing programme. The Government proceeded to set up a new Housing and Urban Development fund specifically to purchase the land.
But because the Government did not get Parliament's approval to create the new spending category, which is required to spend public money, the Auditor-General says the Ihumātao purchase was "unlawful".
"The payment of $29.9 million used to purchase the land was incurred without the proper authority," the Auditor-General said in a letter to National.
"The Ministry did not seek the correct approvals, the expenditure was incurred without appropriation and without authority to use imprest supply. For these reasons, the payment is unlawful until validated by Parliament."
Imprest supply allows the Government to spend money outside of what it outlines in its annual Budget.
The Auditor-General is now requiring the Government to take a number of steps to remedy the unlawfulness of the purchase, by getting Housing Minister Megan Woods to explain the matter to Parliament.
Prime Minister Jacinda Ardern defended the purchase on Tuesday, saying the Government's intent was to use the land for housing.
"We've been confident on our side that we were using funding that was from Land for Housing, and that was exactly, ultimately, what all parties have determined we are working towards."
National's housing spokesperson Nicola Willis has described is as a "disgraceful abuse of the law".
"Ministers are not a law unto themselves with authority to write cheques whenever they wish," she said.
"They need to get the approval of Parliament first. But when it came to Ihumātao, the Labour Government decided the usual rules need not apply."