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Kennedy Graham and David Clendon have withdrawn from the Green Party's caucus but will remain as MPs.
They left the caucus on Tuesday after a move to expel them following an ultimatum over Metiria Turei's leadership.
Ms Turei said last week she would not resign over her controversial benefit history 20 years ago, when she lied to authorities about her living situation and what electorate she belonged to.
The Dunedin-based MP had also failed to declare all her flatmates when she was claiming a sole-parent benefit while a law student in the 1990s - despite considering it and discussing it with Greens co-leader James Shaw.
On Monday night, Mr Graham and Mr Clendon quit the party in protest saying: "We do not believe that lying to a public agency - WINZ, IRD or any other - can ever be condoned."
They said Ms Turei's ongoing defence of her admission, and its timing, was "incompatible with the standards of leadership of the Green Party" and that the party should appoint a new female co-leader for the election.
After a caucus meeting on Tuesday morning, it was decided Mr Graham and Mr Clendon would stay on as MPs until the election on September 23, but would not take part in any caucus events or campaigning.
In a statement, Green Party co-leader James Shaw said on Tuesday the decision was supported by all 12 of the other MPs.
"The remainder of the Green Party caucus is 100 percent behind our co-leader Metiria," Mr Shaw said.
Mr Clendon and Mr Graham would still be able to draw the MPs' salary until the election and would get the payout of three months' salary - about $40,000 - which is given to MPs who do not return after an election.
Turei staying on as co-leader
Metiria Turei was standing firm on Tuesday, saying she had no plans to step down as co-leader.
Speaking to reporters she said: "I talked to my caucus last night. All of them but those two have asked me to stay on. So that's what I'll do."
However, last week, the under-fire politician said she would not seek to be part of a cabinet in a Labour-Greens government after the election.
"I'm not resigning as co-leader or as a Member of Parliament," she said.
"I will continue to stand for New Zealanders who are poor and who are treated with discrimination by the welfare system. This work is important. It is more important than one person."
Mr Shaw told the media at Parliament on Tuesday that he would not be making any more comment.
Mr Graham was expected to have more to say later in the day.
"I think it's quite important not to inflame things any further, I think we need to be cool, calm and dignified and have a decent discussion," he said.
He hadn't yet talked to Mr Clendon. Asked if he was upset about how it had played out, Mr Graham said: "I can handle life as it comes".
Earlier today, Green MP Catherine Delahunty said she absolutely stood with Ms Turei and the reasons for her admission.
Ms Delahunty said Mr Graham and Mr Clendon had a right to do what they did but "the way that they have gone about it has not made us very happy".
"I don't support any view that our co-leader has been anything but courageous."
Green MP Barry Coates said that he thought Mr Graham and Mr Clendon had thrown the party under the bus. He said most voters would not care about the controversy as much as the media, and said Ms Turei had his complete support.
"I support what we all decided to do in trying to stimulate this discussion about poverty in New Zealand."
The first he heard about the resignations was in the media. "And that's [not] the way we do things in the Green Party."
Green MP Steffan Browning also said he was disappointed with the resignations and how they were handled. "I don't think that's the correct thing to do at all."
Former Green MP Sue Bradford said such public disunity among the Green Party was unprecedented.
"I can't remember anything like this - for people to publicly make a stand like that and for the Greens to accept a resignation like that, it is unprecedented.
"Good on the Greens for accepting the resignations and good on them for sticking by Metiria and the courageous stand she made rather than undermining the leader."
Mr Graham, the Green candidate for North Shore, was ranked at eighth on the party's list and was likely to be re-elected. Mr Clendon, from Northland, was ranked at 16, placing him on the cusp of re-election.
Green Party general manager Sarah Helm said on Monday night that the MPs had been asked last year to stand down at the general election but had refused to.
As a result, they had received list rankings they were unhappy with, and had been disgruntled ever since, she said.
Ms Helm also said that the two MPs had been "underperforming" in the election campaign so far. Mr Clendon had made just one phone call, and Mr Graham had done three to four hours' campaigning work, she said.