More than 10 donor countries suspended their funding for the United Nations Relief and Works Agency for Palestine Refugees, the UN's largest agency operating in Gaza, over the weekend.
They included Australia, the United States, the United Kingdom, Germany, Italy, Japan and Austria.
Israel had provided the agency with information alleging a dozen staff were involved in the October 7 attack by Hamas fighters in southern Israel, which left about 1300 dead and about 250 taken as hostages.
More than 26,000 people - mostly women and children - have been killed in Gaza since Israel launched a major military operation in response, according to the Hamas-run health ministry.
Heading into National's caucus meeting this morning, Luxon confirmed New Zealand would be halting further funding for the agency until Foreign Minister Winston Peters gave the go-ahead.
"Look, I mean the allegations are incredibly serious, it's important they are properly understood and investigated, we won't be making any further contributions until the foreign minister says it's good to do so," Luxon said.
"That'll take as long as it takes."
He said the funding of about $1 million compared to the $10m in humanitarian assistance the government had provided for the relief effort, "and we've split that money between the international red cross and also the world food programme".
The Ministry of Foreign Affairs and Trade on Monday said New Zealand was taking the allegations seriously, and would be following the UN investigation of the allegations closely.
"New Zealand remains committed to supporting the critical humanitarian response in Gaza. We continue to call for safe and unimpeded humanitarian access so that affected civilians can receive the lifesaving assistance that is so desperately needed."
The ministry said the funding would, as usual, be assessed before any payment was made.
However, the BBC quoted the agency as saying the halt in funding had left the agency "extremely desperate", saying "humanitarian needs in Gaza are growing by the hour".
Former prime minister Helen Clark also urged Australia and other western countries to reinstate funding to avoid a "harsh collective punishment of the Gazan people".
"I appreciate that, but we're the government, and they're serious allegations, they need to be understood and investigated and when the foreign minister says that he's done that and he's happy for us to contribute and continue to contribute, we'll do that."
Misery can only increase
Clark, who led the UN Development Programme which oversees UNRWA, told Morning Report it was the biggest platform for getting humanitarian aid into Gaza for a populations that is 85 percent displaced, with people on the verge on starvation and going without medical supplies.
"If you're going to defund and destroy this platform, then the misery and suffering of the people under bombardment can only increase and you can only have more deaths."
Clark said it was "most regrettable that countries have acted in this precipitous way to defund the organisation on the basis of allegations".
She did not deny the allegations made were serious, but said defunding the agency without knowing the outcome of the investigation was not the right decision.
"I led an organisation that had tens of thousands of people on contracts at any one time. Could I say, hand on heart, people never did anything wrong? No I couldn't. But what I could say was that any allegations would be fully investigated and results made publicly known.
"That's exactly what the head of UNRWA has said, it's what the Secretary General's saying, that process is underway, but this is not a time to be just cutting off the funding because a small minority of UNRWA staff face allegations."
In the meantime, people could starve to death or die because they did not receive the medication they needed, Clark said.
If major donor countries like the United States and Germany continued to withhold funding, UNRWA would go down and there was no alternative, she said.
Clark did not believe there was any coincidence in the allegations being made known at the same time as the International Court of Justice's ruling on the situation in Gaza.
According to the BBC, the court urged Israel to do everything in its power to refrain from killing and injuring Palestinians and do more to "prevent and punish" public incitement to genocide.
Clark said it was an attempt to deflect the significant rulings made of the court and dismiss them.
"I think it's fairly obvious what was happening."
