Mr McCully defended not becoming involved in the case for seven weeks - after the story had broken in the media - in an interview with RNZ this morning.
"It's a good and proper process to leave these matters to the prosecutorial authorities, the police on one hand and the consular protocol authorities."
His role was to stand back, he said.
"The appropriate thing to do here is to enable the police on one hand and the protocol people on the other to take it through the system - and that is what always happens in these cases.
"I was confident that I would be told if anything significant happened on the case."
If ministers second-guessed all advise they received from their officials, it would add heavily to their workload, Mr McCully said.
"I was entitled to believe what I was told in black and white and forwarded to the Prime Minister was correct.
"The first time there was any question about the advise that I got was when I saw the remarks by the Malaysian Foreign Minister and I thought 'Hey, this doesn't sound like the briefing material I've been given, this doesn't sound like the position that New Zealand officials told me', and that's when I asked to see the files and that's when I asked to talk to him."
Mr McCully has not offered his resignation over the matter.
But he said there did need to be someone held to account and the ministry was investigating the matter.
"I intend to see that this matter is followed through, that those responsible are held to account."
Mr McCully would not be drawn on whether heads will roll within Mfat over the debacle.
In an interview with RadioLIVE this morning he said the inquiry Mr Allen was undertaking within Mfat would establish whether any jobs were on the line over the handling of the incident.
"If I say that [heads will roll] that's going to no doubt prejudice the outcome... this is a very, very serious matter... I've made my views on that very clear. The chief executive has undertaken to me that he will conduct the appropriate inquiries and hold people to account, and that's as far as I can take it," he said.
"We need to make sure we don't have a repeat of what's occurred in recent weeks."
Former Labour Party Foreign Affairs Minister Phil Goff told Radio New Zealand Mr McCully had to explain why there was such an "extraordinary indifference or incompetence" by him and the Ministry in dealing with the matter.
"Speaking as a former foreign minister I know for a fact in an extraordinary situation like this, the minister would be right on top of the issue.
"He would be having daily negotiations and discussions through his chief executive officer in the ministry - the matter would never have been able to drift as this has been allowed to drift."
It seemed Mr McCully was more interested in sweeping the issue under the carpet than taking the matter up and seeing justice done for the alleged offence, Mr Goff said.
The Malaysian Government would be embarrassed that one of their nationals had allegedly behaved illegally, he said.
"And according to the Minister of Foreign Affairs in Malaysia, in his comments yesterday, this was always on the table, this was always on offer, it's simply that the New Zealand Government hadn't chosen to take that up."
Prime Minister John Key and Mr McCully had damaged the relationship with Malaysia by initially accusing them of not offering to waive Ismail's diplomatic immunity, Mr Goff said.
