Corrections is set to pay more than $1 million to Waikeria prisoners and staff following a riot over the New Year.
The payment will cover property destroyed during the incident - sparked by protests over prison conditions.
"Through no fault of their own, they had their personal property destroyed," Corrections Minister Kelvin Davis said.
In Cabinet papers signed by Davis released on Thursday, Corrections said it's not "legally liable" for the personal property lost during the riot, however: "Government departments are authorised to make ex gratia payments, which are made out of goodwill or a sense of moral obligation rather than being required by law.
"Corrections has quantified the ex gratia payment based on the scale of loss suffered by people in prison and staff.
"People in prison lost a wide range of items as a result of the riot."
National Party Corrections spokesperson Simeon Brown has blasted the decision.
"We shouldn't be having to pay anyone for the destruction of their property because the riot should not have happened," he said in a statement.
"These are the consequences for a Corrections Minister who lost control of a prison.
"I feel for the hard-working Corrections officers who were caught up in the mess. It was entirely out of their control."
Several inmates took to the roof of the old jail at Waikeria Prison in late December to protest what they claimed were inhumane conditions and a lack of access to basic necessities.
The stand-off lasted for six days, during which they set fire to buildings and ripped off shower doors to fight guards.