Labour's demanding the removal of private operator Serco from prisons, following allegations a prisoner has been sexually assaulted under its care.

Police are investigating a transgender inmate's claim of sexual assault at the Serco-run Auckland South Corrections Facility.

Its acting Corrections Spokesperson Jacinda Ardern said it's not even the final straw - that happened some time ago.

"What this does demonstrate is that there are issues that go beyond just Mt Eden into other Serco facilities, in our view this is just another reason to have Serco out of New Zealand all together."

A lobby group, No Pride in Prisons, said the inmate who has made the complaint is a transgender woman, who they believe shouldn't have been in a men's prison in the first place.

The group said she was also physically assaulted by seven other inmates the night before the alleged sexual assault.

Ardern said the prisoner is said to have asked to be in segregation.

"There is an obligation on Serco to make sure that that request is fulfilled and the fact that there's been allegedly a brutal attack is a breach of their contract."