UPDATED 12.06pm: Labour leader Andrew Little has been threatened with defamation action by the owners of a hotel chain.

Earl Hagaman, the founder of the Scenic Hotel Group, said Mr Little had a week to retract and apologise for comments he made last month about the management of a resort owned by Matavai Niue Limited.

If Mr Little did not do so, he would face defamation proceedings, Mr Hagaman said in a statement.

The Matavai is owned by the Niue Tourism Property Trust on behalf of the Government of Niue, which owned the resort before then.

That arrangement was put in place in 2011 to ensure oversight of the aid investment New Zealand was putting in.

Foreign Affairs Minister Murray McCully appoints the trustees who are Ross Ardern (NZ's High Commissioner to Niue and father of Labour MP Jacinda Ardern), Ministry of Foreign Affairs deputy secretary Jonathan Kings and former High Commissioner Mark Blumsky, who was formerly a National MP and now lives in Niue.

Mr Little made the comments outside Parliament's debating chamber, and was therefore not covered by legal privilege.

On April 18, Labour called for the Auditor General to look into Scenic Hotels Group's contract to manage the Matavai resort after it was discovered that Mr Hagaman, gave a $101,000 donation to National the month before the contract was announced in 2014.

Mr Little said at that time that the close timing of the donation to the awarding of the contract "stinks to high heaven".

Mr Hagaman and wife Lani Hagaman said that after seeking advice, their solicitor had notified the Labour leader today that defamation proceedings would ensue "unless the position can be properly retrieved".

Lani Hagaman said their lawyers had confirmed their view that Mr Little's allegations were "false and defamatory".

"We are asking for a full retraction and apology because no one should be verbally attacked and denigrated because they believe in democracy and the right to make their own unsolicited political choice on who they want to give a donation to," Lani Hagaman said.

"The decision to make the donation was completely unsolicited and was Earl's personal decision and nothing to do with the Scenic Hotel business."

Lani Hagaman criticised Mr Little's use of his Parliamentary role to attack their business.

She said her and Earl did not "come from power or privilege" and had strived to give others a livelihood and provide support to regional economies "where other big hotel chains won't invest".

"The position Andrew Little holds is one of power and privilege. It should be a privilege to be elected into Parliament and work hard for the people of New Zealand, rather than to cast unjustifiable slurs on people because they have made a donation to the party of his prime political opponent."

Mr Little said he had received a letter from the Hagaman’s lawyer this morning. He was now “considering the issue and taking advice”.

He added: “I will not be restrained from undertaking my constitutional role of calling the government of the day to account.”

Mr Little has been approached for comment.

Last month, he compared the Scenic Hotel Group’s resort contract to the Government’s “dodgy deals” with SkyCity casino and a sheep farm in Saudi Arabia.

“New Zealand money, which was earmarked as aid for the island nation, has instead been given to upgrade a resort run by a National party donor,” he said.

Mr McCully dismissed his allegations, saying that they were “utterly baseless”.

The Auditor-General’s office said today it had not yet decided whether to open an investigation into the case.