Donnelly stood again for New Zealand First in Whangarei in the 1996 election and, with the advent of the MMP system, was ranked sixth on the party list.

As well as sitting as a minister outside of Cabinet, Donnelly was a member of parliament's foreign affairs, defence and trade committee.

Donnelly was among the half of New Zealand First members who remained loyal to the party and did not provide continuing support to the government.

As well as being his party's spokesperson for education and science, he also had responsibility for biosecurity, communications and information technology, industry training, local government, Pacific island affairs, and regional development.

He voted for legislation enabling civil unions in New Zealand and Sue Bradford's member's bill to remove the provision allowing parents to use reasonable force in correcting their children.

In retaliation, current New Zealand First President Dail Jones threatened demotion of the long-serving List MP, as well as fellow repeal supporter Doug Woolerton.

[citation needed] Donnelly was widely respected by members from other political parties and was considered a potential successor to New Zealand First leader Winston Peters.

[9] His appointment as New Zealand's High Commissioner to the Cook Islands was brief, from February to August 2008, and ended when he resigned due to ill health.