Corrections Minister Sam Lotu-Iiga has revealed that a prison guard helped inmates with their fighting techniques in Mt Eden prison.
Labour said the situation at Mt Eden was getting beyond a joke and is further proof that a fully independent inquiry is needed.
At the weekend, private prison company Serco confirmed a staff member was suspended after being caught on security footage fighting with an inmate.
Neither the company nor the Corrections Department would comment further while the Chief Inspectorate of Prisons was investigating the running of Mount Eden.
Mr Lotu-Liga said the staff member was not fighting with an inmate.
"[The footage] shows a prison guard on CCTV footage approaching a group of prisoners who were sparring, he then gives them some coaching on their technique.
"Sparring is a banned activity and Serco was shown the footage on the sixth of August. Serco have suspended the staff member while the investigation proceeds."
Labour corrections spokesperson Kelvin Davis said the situation with Serco has gone from the sublime to the ridiculous.
"The Minister's statement today that a guard was coaching sparring techniques to inmates is completely shambolic.
"An independent inquiry is the only way forward as I have no confidence whatsoever in the findings of any inquiry conducted by Corrections or Serco."
Mr Davis said he was continuing to get letters about allegations of abuse and mistreatment in prisons some of which he had passed on to the police.