Prime Minister Christopher Luxon says he will pay back his accommodation allowance.
He was receiving the payment which is $52,000 over the course of a year to live in his own mortgage-free apartment in Wellington - one of seven properties he owns.
So far he had received around $13,000.
A $31,000 supplement is available for all MPs living away from home when in Wellington, but the prime minister gets a higher subsidy of $52,000.
Luxon said he only received the first payment this week.
"It's clear that the issue of my accommodation allowance is becoming a distraction," he said.
"As such, I have decided today that I will no longer claim the allowance and will repay anything I have received since I became Prime Minister."
The U-turn came just hours after Luxon defended his use of the allowance to reporters in Queenstown, calling it an "entitlement".
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Also Read: https://www.indianweekender.co.nz/news/luxon-claims-52k-payment-skips-premier-house
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He had campaigned on wasteful public spending and a need for cost cutting across the public service and under the coalition government, ministries have been asked to find at least 6.5 percent of savings.
"It's an entitlement and I'm well within the rules," he said.
Luxon was the first prime minister in at least 34 years to take the subsidy.
Prime ministers have Premier House available to live in but Luxon said on Friday he was choosing not to due to long-standing maintenance issues.
"We're trying to work out how we can make that work, so that actually I can go live there - it's my preference to do so. Until then, I continue to live in the apartment that I have."
Earlier today Labour leader Chris Hipkins said Luxon should not have been claiming the allowance.
"Christopher Luxon's treating hard-working Kiwis like a bottomless ATM. He needs to apply his own tough-love standard to himself," he said.
"I think it's absolutely hypocritical for Christopher Luxon to be saying that every other New Zealander needs to stomach cuts, while he's claiming a $52,000 a year - that's $1000 a week - allowance to live in his own house mortgage free.
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Also Read: https://www.indianweekender.co.nz/news/luxon-defends-billing-taxpayers-for-renting-house-he-owns
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"The fact that it's within the rules doesn't mean that it's the right thing to do."
He said Luxon had access to Premier House at no cost to himself. While it did need some maintenance and structural problems, there was no risk to safety and it was "still liveable" and "in reasonable state", he said.