The tiny Pacific island nation of Niue has become embroiled in allegations of political cronyism in New Zealand with lawmakers calling for an independent probe into development aid.

The main opposition Labour Party on Monday asked the auditor-general to investigate New Zealand government funding of 7.5 million NZ dollars (5.18 million U.S. dollars) to upgrade Niue's flagship holiday resort as part of a program to build the island's tourism industry.

The call for a probe followed revelations that a New Zealand businessman made two large donations totaling about 100,000 NZ dollars (69,040 U.S. dollars) to New Zealand's ruling center-right National Party before his company was awarded the Matavai Resort management contract in 2014.

The revelations about the Scenic Hotel Group and its resort contract in Niue "stink to high heaven," Labour Party leader Andrew Little said in a statement.

The auditor-general had been asked to investigate whether Scenic Hotel Group founder Earl Hagaman giving money to the party at the same time his company was tendering for the Niue contract was "above board," said Little.

"New Zealand money, which was earmarked as aid for the island nation, has instead been given to upgrade a resort run by a National Party donor," said Little.

Foreign Minister Murray McCully had personally appointed the trustees on Niue Tourism Property Trust which awarded this contract, he said.

"We must have questions answered on how the tender process worked, who knew about links between donations and the tenderer and whether Niuean people will ultimately benefit from the resort's funding. The perception of propriety is key," said Little.

McCully said in a report by Radio New Zealand Monday that the Niuean government had requested the aid funding and the Scenic Hotel Group won the contract after an international competitive process, with no involvement from him or his office.

McCully said there was no link between the winning of the contract, the aid funding and the donation to the National Party.

"I can tell you that I had no involvement in the appointment process, conducted purely by the trustees and commercial management they appointed," said McCully.

McCully announced in 2011 that New Zealand would invest 15 million NZ dollars (10.36 million U.S. dollars) in helping to develop Niue into a "boutique tourism destination."

Announcing the additional funding in 2014, McCully said tourism was "the key to putting Niue on a path towards self-sufficiency."

The funding would see the development of a further 20 rooms at the Matavai and conference facilities that would accommodate an average increase of 2,000 visitors per year to the Matavai.

Niue was annexed to New Zealand in 1901, but in 1974 the island became self-governing in free association with New Zealand.

Niueans are New Zealand citizens and 24,000 Niueans live in New Zealand, compared with about 1,500 living in Niue. Endit

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