A Serco staff member at Mt Eden prison was suspended not for fighting an inmate but for instructing him on sparring technique, the Corrections Minister says.

The incident was discovered as part of a review into the prison being carried out after allegations of fight clubs between inmates and drug smuggling.

After being questioned by Labour MP Kelvin Davis today, Corrections Minister Peseta Sam Lotu-Iiga said reports that the officer had fought an inmate were incorrect.

Mr Lotu-Iiga said footage of the incident was taken on June 23, and he was advised of it on August 6.

"I haven't seen the footage but I have been advised that it shows a prison guard, on CCTV footage, approaching a group of prisoners who were sparring," Mr Lotu-Iiga said, to laughter from the opposition benches.

"Sparring is a banned activity, and Serco were shown the footage on August 6. Serco have suspended the staff member while the investigation proceeds."

In response, Mr Davis asked if Mr Lotu-Iiga, "was saying that guards are now training the inmates how to fight?"

"This case has been the subject of a lot of hearsay and mis-reporting. What I am saying is it is currently under investigation by the Chief Inspectorate, and we should await the findings of his review," Mr Lotu-Iiga said.

The Corrections Department has taken control of the Mt Eden Corrections Facility, which was being operated by private company Serco, following allegations of fight clubs involving inmates and drug smuggling.

The Prison Inspectorate and the Ombudsman is carrying out a review of the prison after the allegations, and it was during this that the incident involving the now suspended officer came to light.

After question time, Mr Davis said the revelations that a Serco prison guard coached inmates on fight club techniques confirmed another, fully independent inquiry was needed.

"The Minister's statement today that a guard was coaching sparring techniques to inmates is completely shambolic.

"Serco is engaged in a multi-million dollar Government contract and they're serving a weekly sentence of incompetence and life-endangering wrongful practices.

"Serco should never have been given the contract and they've got to go. If the Minister doesn't have the guts to do it after all that's happened, it's just more evidence he isn't up to it."