In a bizarre twist, the taxpayer-funded networks are competing for the local broadcast rights to 16 All Black games.
The MTS bid is backed by Te Puni Kokiri, the Ministry of Maori Development, which has put up $3 million.
Maori Affairs Minister Pita Sharples supports it and didn't tell his cabinet colleagues before the bid went in.
TVNZ followed at the last minute with a consortium bid involving privately-owned TV3, backed by the Government.
Cabinet will have to sign off funds, likely to be $3m-$4m, if the TVNZ bid succeeds.
Broadcasting Minister Jonathan Coleman said TVNZ asked for a level playing field.
"You can do the sums -- you can see it's going to be a reasonable amount of money."
Dr Sharples, clearly angry about the way the situation developed, said iwi were offering money to boost the MTS bid.
"It was a reaction by some iwi to say to us 'you've been done and we should help you'," he told reporters.
MTS chief executive Jim Mather said last night the Government's decision amounted to an attempt to defeat MTS and was "extremely disappointing".
He said he was "extremely concerned" about allegations that the TVNZ bid was developed with access to confidential information about the MTS bid, which indicated the tender process had been compromised.
"The TPK support has been labelled inappropriate use of government funding, yet now the Government is providing more funds to beat the Maori Television bid," he said.
"What is the rationale for this, and why is funding for TVNZ now deemed to be appropriate use of government funds?"
Mr Mather said MTS had addressed government concerns that its signal did not reach 10 percent of the population by modifying its bid to allow for the sub-licensing of some games.
"It is our understanding that Prime Minister John Key was happy with this arrangement."
The Labour Party said the competing bids confirmed the Government's "shambolic" policies.
Broadcasting spokesman Brendon Burns said the Government's belated intervention would simply line the pockets of the International Rugby Board as it played off two state-funded bids.
