In December human rights activist Ken Kato told the ABC that the Pacific island nation had given passports to North Korean directors of a company which the United Nations says is a front for illegal arms shipping.
Kiribati President Anote Tong says passports were sold to the Chinese in the 1990s as a "means of generating revenue" for his country.
Mr Tong told Radio Australia's Pacific Beat he put a stop to the passport program soon after he was elected.
"When I came into office in 2003 we cancelled that program because it was something that was not very popular," he said.
"We did not believe it was the right thing to be done.
"But I think that angle with the involvement of North Koreans and particularly with potential terrorist connection was never something we intended to happen nor did we expect it would happen."
"I can assure you that we had corrected that situation in 2004 when we stopped issuing these passports."
The Indian island nation of the Seychelles was also alleged to have provided passports to the directors of the Hong Kong-based firm, New East International Trading Limited.
At the time the Seychelles Government said police and financial investigators were looking into the claims.