An internal investigation has been launched after the Education Ministry pulled the plug on a school rebuild it had promised two years earlier.

Ministry staff told Te Kura o Matapihi near Tauranga that it qualified for a full rebuild, but last week told the 150-student school that was a mistake and the work would not go ahead as planned.

The kura's tumuaki, Tui Yeager, said the school had been working on the plans for more than two years and the news was an unwelcome surprise.

"We've just found out recently from the ministry that 'no, there is no rebuild' so as you can imagine we're not very happy with that because the classes we've got are all substandard and we've got a growing roll," Ms Yeager said.

"What we've been told is that it was actually a mistake."

Ms Yeager said the school was teaching children in its library and computer suite because it did not have enough room.

She said the ministry wanted the school to cap its roll, but that was unfair on local parents who did not have any other options for Māori-medium education.

She said the only bright spot was the ministry had told the school it was entitled to three more classrooms.

The chairperson of the kura's board of trustees, Carlo Ellis, said the board and whānau reacted emotionally to the news that the rebuild had been cancelled.

"Oh there [were] tears, and quite a lot of quivering voices," he said.

"Certainly there was some raw emotion."

Mr Ellis said the ministry's own documents listed Te Kura o Matapihi as the most over-crowded school in Bay of Plenty at 41 percent above its classroom capacity.

"So for us it's a real mystery. We feel like we're delivering on the number one strategy for the Ministry of Education in terms of Māori-medium development and we're getting told we're not getting a rebuild and at the same time we are the most over-crowded school in the Bay of Plenty."

The Education Ministry's acting head of the education infrastructure service, Rob Giller, said in a statement the ministry had never given formal approval for a rebuild.

"We recently became aware that Te Kura o Matapihi had been led to believe their kura would be rebuilt. One of our senior managers visited the school last week to inform the board that unfortunately the correct ministry processes had not been followed, and no approval had been given for a rebuild," he said.

"As well as apologising to the kura, we have been carrying out an internal investigation to understand how this unfortunate situation arose."

Mr Giller said the ministry would work with the kura on a comprehensive property plan that would address their current and future roll growth needs.

"This process will get underway at the earliest opportunity and make use of the design and planning work already done."