"I've made it clear we are very reluctant to take our funding away … but where the system that we're funding is essentially part of the problem rather than the solution, we don't have much choice," Radio New Zealand reported. The New Zealand Herald reported Mr McCully citing the access of asylum seekers to justice as "a concern of ours". The New Zealand government has expressed concern about the fate of Nauruan opposition MP Roland Kun, who was among three MPs suspended from Parliament for giving interviews with foreign media that criticised the government. His passport was confiscated, preventing him from reuniting with his wife and three children in New Zealand. After the MPs were suspended Foreign Affairs Minister Julie Bishop called on Nauru to respect freedom of speech and "uphold fundamental values of a robust democracy".

The Nauru government last year sacked its only magistrate, Australian Peter Law. It then cancelled the visa of the island's chief justice, Geoffrey Eames, a former Victorian Supreme Court judge. Justice Eames had issued an injunction aimed at preventing Mr Law's removal, however it was ignored. Justice Eames had been Nauru's chief justice for three years and is believed to have expressed concerns to the Nauruan government about the conditions faced by asylum seekers. Nauru has also banned access to Facebook and imposed a $8000 visa fee for foreign journalists. Greens senator Sarah Hanson Young said the Abbott government must follow New Zealand's lead and suspend funding to Nauru. "Gripped in the throes of a systemic legal collapse, the Nauruan government should not be receiving kickbacks from Australia," she said.

"New Zealand has realised that the Nauruan justice system cannot be trusted with its money, but Australia is so desperate to lock refugees up there that it will apparently turn a blind eye to anything." She said until the rule of law was re-established on the island, the detention centre should be closed. Ms Bishop said she spoke to Nauru President Baron Waqa on Thursday and Australia's development assistance, which supports health, education and public sector management, is not under review. "I understand that the legal processes involving opposition MPs in Nauru are progressing and judicial processes are being followed. I received assurances from President Waqa that the rule of law will be upheld," she said. "We will continue to engage with Nauru until this issue is resolved."

In a statement, the Nauruan government said it was disappointed by New Zealand's decision, describing it as "misguided and ... based on misinformation". "Any suggestion that the Nauru justice system is not independent or that the rule of law is not being upheld is completely wrong," it said. Follow us on Twitter