Christopher Luxon has accused Labour of trying to "scare the public" into thinking Opposition parties could privatise water assets if elected into power.
He said National wouldn't privatise the infrastructure if it entered Government, instead wanting the assets in "local control and ownership".
It comes after Labour and the Greens last week supported a proposal to entrench part of the Three Waters legislation which keeps water infrastructure in public ownership. That means the assets cannot be privatised unless 60 percent of parliamentarians agree to repeal the clause.
National didn't support the move, nor did it support a previous effort by the Government to introduce an entrenchment threshold at the normal 75 percent level.
The party's opposition has led others to call on it to state its position on privatisation.
But Luxon on Tuesday said Labour is the only one talking about privatising water.
"That's because they want to scare the public into thinking that their assets are going to be privatised. They are not," Luxon said.
"We don't support the letter they wanted us to sign because by doing so we're actually supporting the four major entities that they actually want to create, which we don't think is the right way forward."
The National leader said the party has "no interest in privatising these assets".
"We want them in local control and ownership so we can get that responsiveness in place that we desperately want to see."
He described privatisation as being used as a "squirrel to distract from the real issue", which he said is the formation of four water entities through the Government's Three Waters programme.
Focus is back on Three Waters after constitutional experts raised concerns about the use of entrenchment.
Entrenchment means legislation can only be amended or repealed if a special majority agree to it in Parliament. As it's previously only been used on electoral law, its use on the Three Waters legislation raised eyebrows.
A group of academics on Monday urged the Government to "think about the dangerous precedent that this legislative action may set".
"It extends the use of entrenchment protection from a very limited range of matters fundamental to our constitutional system to a matter of contested social policy. Not only does this move invite similar attempts in the future, it also risks undermining the seriousness with which entrenchment is taken by Parliament and the public generally."
Prime Minister Jacinda Ardern on Monday said concerns with the use of entrenchment in this case were "legitimate" and Cabinet agreed to refer the matter to Parliament's Business Committee to consider.
Ardern and Leader of the House Chris Hipkins were aware of the previous attempt to get support for the 75 percent entrenchment, but not of the 60 percent provision put forward by the Greens until after the fact.
Responding to questions from journalists, Ardern repeatedly said Labour stood "firm against the privatisation of water assets" and called on other parties to make the same pledge.
"We stand firm on the issue of privatisation. We haven’t resiled from that at all. There are a number of initiatives in the bill to prevent that ever from occurring.
"Having a political pledge from other parties would, I think, give extra confidence to the public. Here, though, we saw a more novel use of entrenchment. I do think it’s right that we go back and discuss with the Parliament its use in this case."
Luxon said a discussion at Business Committee about entrenchment isn't needed.
"It's very clear you don't use entrenchment for this kind of Bill or for this piece of legislation. The onus is back on the Government to actually say take the Bill, take the Bill back into Parliament and make the change you need to make and get rid of the entrenchment clause."
In the House last week, Local Government Minister Nanaia Mahuta - who is shepherding the Three Waters legislation through Parliament - said the Government wrote to parties previously to seek their support for entrenchment.
"That is certainly the view of members on this side of the House and the Government. However, National and ACT clearly did not want to give that type of assurance.
"We regret that, because, when we stand in front of this House to progress this particular bill, we want all New Zealanders to know that the House, when they say they're against privatisation, actually mean it—when they say they are against privatisation, they mean it."
Green MP Eugenie Sage, who put forward the 60 percent entrenchment amendment, argued public submitters on the legislation had been concerned about potential future privatisation.
"This SOP responds to that public concern that we avoid privatisation of water services and we maintain them and public ownership with the public interest in ensuring that all New Zealanders have access to affordable water services of high quality, and that the significant revenue involved in operating these services, significant investment involved - we don't want overseas companies taking the services and operating them primarily for profit."
Simon Watts, National's local government spokesperson, said the suggestion that parties who oppose entrenchment may wish to privatise water assets was just "cynical, political spin".
"This is political spin by both the Greens and Labour to try and rark up a story that doesn't exist. That is a real disappointment, but that is what is going on here - and against the advice of other players. They know it's not a practical mechanism - that, even in an eventuality, which would never occur, this would be effective. It is cynical political spin."