UPDATED 3.45pm: Outrage that John Key will use taxpayer funds to defend a defamation case over the Teapot Tapes affair.

Cameraman Bradley Ambrose is seeking more than $1 million from the Prime Minister, for comments he made after his meeting with former ACT leader John Banks was secretly recorded.

Mr Key's office has confirmed his legal fees will be covered from his Parliamentary leaders' budget.

New Zealand First leader Winston Peters says that's not on.

"The National Party leaders budget is for the National Party going about a legitimate political purpose in Parliament. It's not for these sorts of actions."