Police have launched a review into how they conduct undercover operations as Prime Minister John Key insists their elite organised crime-busting agency is not a "rogue outfit".

The Organised and Financial Crime Agency is under fire after a judge threw out charges against 21 people accused of gang-related offences because it fooled a court into prosecuting an undercover officer.

The blunder came hot on the heels of controversy over the agency's operation to arrest internet tycoon Kim Dotcom.

Both Mr Key and Police Minister Anne Tolley have defended the agency, saying it operates under difficult circumstances.

However, Labour's police spokesman Kris Faafoi said it raises serious questions about how OFCANZ operates.

Last night Police Assistant Commissioner Malcolm Burgess said police would reassess aspects of undercover operations.

The covert programme was "difficult and dangerous" work and police were committed to operating within the law.

But he did not address the issue of the police manual, which was rewritten after the fake prosecution.

At the time of the undercover officer's arrest, it stated that police must not allow an agent to appear under a fictitious name without the permission of the court. "Deceiving a court is not permitted."

High Court judge Justice Simon France said there was no basis for the rewritten version to state "that past experience shows the Chief Judge is supportive . . . it is misleading in suggesting an established practice where none exists".

Mr Faafoi said questions remained about whether the problems were systematic or if OFCANZ was under-resourced. "Have they got five people doing the job of 10? We still don't know the answer to that.

"It's a pretty serious decision handed down from the court. Someone has to be held accountable and get to the bottom of it."

Mr Key confirmed the force was taking a "close look" at the ruling, but denied suggestions OFCANZ had gone rogue.

Mrs Tolley said police acted to protect their undercover agent. She denied funding was an issue. "We can't tie both hands behind their back and expect them to break up these very sophisticated criminal organisations," she said of OFCANZ.

But she refused to back Detective Inspector Grant Wormald, the officer in charge of both Operation Explorer, a two-year bid to snare alleged gang members, and Operation Debut, the Dotcom raid.

She has not sought an explanation from Police Commissioner Peter Marshall. "I certainly back the police . . . they have to stay one step ahead."

OFCANZ had two undercover officers infiltrate the Nelson Red Devils Motorcycle Club. But they believed gang leaders were suspicious of the agent known as Michael Wiremu Wilson and staged the fake arrest and prosecution.

Justice France ordered a stay of proceedings, halting the drugs and firearms charges.

The Dominion Post revealed yesterday that a judge threw out charges in another case involving the Red Devils this year. The Nelson case has implications in the prosecution of the ex-president of the Hells Angels gang, Philip Ernest Schubert, on P charges.

He was accused of offering to supply drugs to Wilson, who was undercover in another operation.

But Schubert's lawyer, Eb Leary, believes the charge will be dropped in light of Justice France's ruling this week.

- © Fairfax NZ News