Education Minister Hekia Parata recommended that Wanganui Collegiate should not be integrated into the state system, but she was rolled by her Cabinet colleagues.
If integration had not gone ahead, the private school would have closed last year, documents obtained under the Official Information Act show.
Instead, it will now receive $3.1 million a year from the taxpayer, despite an oversupply of 1400 places in the state school system in the region.
The documents show that, on October 29 last year, Ms Parata recommended to the Cabinet that ministers reject the integration move and take no further action.
However, a second paper two days later shows her recommendation was overruled.
"Following discussion on your proposal, and having taken account of all the information before it, Cabinet subsequently noted the following decision: ‘That the Minister of Education intends to agree to the integration of Wanganui Collegiate School into the state network of schools at an estimated cost of $3.1 million per annum . . ."
By law, the education minister has the sole right to approve an integrated school, and the October 31 paper asks Ms Parata to "now . . . make your final decision".
A letter for her to sign, informing the school of the news, was attached.
Labour education spokesman Chris Hipkins said the papers showed Ms Parata was minister in name only. "Cabinet overruled both Parata and all official advice.
"This was a decision based on protecting privilege rather than improving education for all kids."
It followed long-running advice from the ministry and the Treasury to reject integration because of its impact on other local schools.
As of March 2012, there were 1407 unfilled places in state schools in the Whanganui region, with one - Wanganui Girls' College - operating at less than 50 per cent capacity.
Officials warned that co-ed Wanganui Collegiate would draw students from already under-used schools, as well as from others around the North Island.
Former education minister Anne Tolley was also advised in 2011 to rebuff the approach from Wanganui Collegiate, but she rejected officials' advice.
She later deferred final approval on integration to mid-2012, by which time she had been replaced by Ms Parata.
The documents show the school, and its feeder primary St George's Preparatory, were expected to shut their doors at the end of last year if integration did not go ahead.
It had suffered a sharp drop in roll from 520 in 2006 to fewer than 400 last year, and was running an expected loss of $800,000 in 2012 that would go even higher over the next three years. It also had 43 teachers, against the 28 for which a similar-sized state school would be funded.
Officials pressed for staff numbers to be cut before integration, to avoid redundancy costs and ensure the Government was not be blamed for subsequent job losses.
The school's board had at first sought approval to take 500 pupils but later agreed to a cap of 430.
Mr Hipkins said the decision to integrate Collegiate was simply wrong. "If the same level of investment had been made in the existing state schools, a lot more kids would have benefited.
"It was ironic the Government used surplus places as a reason to close and merge Christchurch schools, but was willing to spend millions of dollars integrating a school in an area with surplus places.
"State schools will rightly be worried that the axe could shortly be hanging over their heads, while the rich private school down the road got a government bailout."
- The Dominion Post