Facing her second day of defending Mr Peters over revelations about the donation, Miss Clark said it seemed an exception to the rule which says ministers should give up any gifts worth more than $500.
"The Cabinet Office advises me that if the sum were deemed to be a gift, there would be no reason to require the minister to relinquish it, given the considerable public interest in the court case for which that money was paying."
Under the Cabinet Manual, gifts worth more than $500 must be declared and handed over unless the Prime Minister gives express permission to keep them. The manual also states ministers should not solicit or accept cash to avoid "creating or appearing to create an obligation".
The money was to pay for legal costs of Mr Peters' electoral petition against National's Bob Clarkson following the last election.
Miss Clark said it remained unclear whether Mr Glenn's donation was considered a "gift" under the manual, which did not address money toward legal costs. It was the role of the Pecuniary Interests Registrar to make such a decision.
Miss Clark said the manual did not set down rules, but provided "guidance" which ministers were expected to follow.
The comment prompted criticism from National that she was applying a different standard of acceptable behaviour to Mr Peters than to other ministers.
MP Gerry Brownlee said the manual meant Miss Clark could demand a certain standard of behaviour from ministers.
"Today the Prime Minister cast that aside and said it is not simply a book that sets down rules, it is simply a guide."
Miss Clark repeatedly praised Mr Peters' role as a minister as questioning continued into the Owen Glenn donation and further allegations printed in the Dominion Post of unaccounted for donations from the Vela family.
Although Mr Peters may have escaped the Cabinet Manual, he could still face censure under Parliament's rules if it is decided he breached rules by failing to declare the sum.
The Speaker is considering whether to refer the issue to the Privileges Committee.
Miss Clark has said other authorities - including the Auditor-general, police, Inland Revenue and the Pecuniary Interests Registrar - had the power to investigate it.
Mr Peters is due back from Singapore tomorrow in time for the arrival of US Secretary of State Condoleezza Rice on her first visit.
On National Radio yesterday, Mr Peters said he intended to clear up allegations - which he has described as a "tissue of lies" - upon his return.
He also said he would take legal action against the Dominion Post for its story about the Vela brother donations, saying it was wrong.
Mr Peters has continued to maintain he has not broken any of Parliament's rules or the law but said he would talk to the Speaker about it.
