The Government has rejected a proposed financial offer by David Bain's legal team to settle his compensation claim for wrongful imprisonment.

Mr Bain was found not guilty at a retrial last year of the 1994 murder of his parents and three siblings in Dunedin after spending 13 years in prison.

Mr Bain is seeking legal aid to fight his compensation claim and his lawyer Michael Reed QC said that if they offer had been accepted it could have save the taxpayer up to $10 million, The New Zealand Herald reported today.

"We have offered a short cut, but that has been rejected," Mr Reed said.

"The short cut is that we talk to the Government about a negotiated settlement, because we are concerned that the cost of proving David's innocence - which we are quite confident we can do - is going to be much greater than the amount of any compensation we would be claiming."

Mr Reed said that Justice Minister Simon Power had informed the Bain camp that it had to prove "on the balance of probabilities" Mr Bain was innocent.

"This is going to involve a huge case, which in our estimation may end up costing everyone about $10 million, with an overseas judge to be appointed," Mr Reed said.

He would not discuss how much compensation would be sought, but it is expected to be more than $1 million.

The compensation bid would involve "presumably, recalling about a couple of hundred witnesses and experts from all around the world", Mr Reed said.

"Which seems not an economic thing to do, bearing in mind the state of the economy generally.

"In the public interest, I would have thought it would be better to negotiate with David, to give him some money and to allow him to get on with his life. As it is, he's in limbo."

Mr Bain's lawyers also plan to pursue an inheritance from Mr Bain's parents which went to other family members when Mr Bain was convicted of the five murders in 1995.