Mr Key has quit further negotiation on the "shares plus" concept, and acknowledged in the announcement the decision "may lead to legal action" by the Maori Council and others.
The Labour Party and the Green Party both rounded on the Government, calling National's consultation process a "pretence" and said National was otherwise "blundering onwards" with its asset sales. They said the Government's approach would prompt a reaction that would lead to millions of dollars being spent on legal costs.
By seeking an order in council to remove Mighty River from the list of companies covered by the State Owned Enterprises Act, Mr Key would not have to go to Parliament for approval.
Mr Key said after analysis of the oral submissions made during recent hui, plus written submissions, the Government believed that no new information had come to light to change its preliminary view that the "shares plus" concept should not be progressed.
"Shares plus would create a potential conflict of interest within and between different iwi groups. And it would potentially weaken existing relationships between iwi groups and the state-owned enterprises," Mr Key said.
Labour leader David Shearer said forcing through the sale, carrying the threat of legal action, would ensure Mighty River was "sold for a lot less than its true worth".
"The risk of legal action will seriously lower the value of Mighty River Power in the eyes of investors," he said.
He said investors would subsequently demand a lower price for the Mighty River assets, while some brokers said the markets would factor in the risk potential of future legal challenges.
Douglas Lau, portfolio manager at AMP Capital Investors (NZ) which has $16 billion under management in local funds, said the water rights issue had to be addressed.
"If the water rights issue isn't sorted out prior to the offer, the market will probably put a large discount on that or require lower pricing on those assets," BusinessDay reported.
Green Party co-leader Dr Russel Norman said National's "cavalier attitude" was putting millions of dollars of taxpayer money at risk.
"Asset sales have never made economic sense, but pushing ahead with sales when the issue of water rights is in dispute is completely reckless," Dr Norman said.
He said National had already spent more than $16 million on asset sales processes.
While having budgeted $96 million more to spend on the sales, there were additional unbudgeted costs for the share giveaway and iwi settlements.
Mr Key maintained the Government's position that in common law no-one owns water.
While Maori did have rights and interests in water, those would continue to be addressed through processes such as Treaty settlements, the Government's Fresh Start for Fresh Water programme and dialogue with iwi leaders, he said.
• Tainui tribal authority official Parekawhia McLean resigned from Mighty River's board last week.
Mighty Power River
Decisions yesterday
• Government will neither implement Waitangi Tribunal's "shares plus" concept, nor engage in further discussions.
• Government to remove Mighty River Power from the State Owned Enterprises Act.
Preparing Order in Council for Cabinet and Executive Council to consider and approve on October 23.
• Officials to continue work for up to 49% sale of Mighty River Power, between March and June 2013.
