After a damaging week for party unity, Ms Ardern attempted to draw a line under the episode on Tuesday, sanctioning Dr Sharma for going public with unqualified claims of bullying and wrongdoing.
Dr Sharma, the first-term Hamilton West MP, attacked Ms Ardern and former whip Kieran McAnulty, in a series of missives including one 2624-word Facebook post.
"There were grounds for expulsion," Ms Ardern said, suggesting Dr Sharma had committed serious misconduct under party rules.
"But the team wanted to send a message that whilst they considered this to be very egregious and very serious and that their trust has been lost, they are a team who wants to give second chances.
"There is a pathway back but that will depend on the actions of Gaurav."
After winning his seat in the 2020 Labour landslide, Dr Sharma was a largely unknown backbencher until last Thursday, when he wrote a cryptic NZ Herald column taking aim at Labour's culture.
In following days, he sharpened his criticism and took aim at Mr McAnulty, who he labelled a bully who gaslit and degraded him in front of colleagues.
He also detailed on episode where he waited in his office for two hours while Mr McAnulty drank beer and watched the America's Cup.
Dr Sharma's frustrations appear to stem to a hiring freeze place on his office in response to multiple complaints by previous staff, three of whom quit within months of joining his office.
On Monday, at the same time as Ms Ardern's weekly press conference, Dr Sharma released screenshots of what he said were text messages from Labour colleagues who also believe Mr McAnulty was a bully.
"I want to say to Kieran tonight that I've caught a cold off the boy ... I want to avoid going in (to parliament) on Wednesday and Thursday," one reads.
"I fear that I will have serious mental health related issues staying here bro. I feel like I'm being poisoned," another read.
Mr McAnulty has not responded to the claims, but Ms Ardern has dismissed them as without foundation.
In response to her rogue MP, Ms Ardern called a secret partyroom meeting on Monday night to discuss his acts without him, which she justified as necessary for MPs to speak freely.
Finding out about the meeting through a text message blunder, Dr Sharma then chose against attending a formal caucus meeting on Tuesday, saying the result was predetermined.
Ms Ardern said she was unable to get through to Dr Sharma to tell him of the unanimous caucus decision.
"I've called, messaged. Others have called. Unfortunately I was unable to talk to him," she said.
"I note he did find the time to speak to media."
Labour have set out a mediation process for Dr Sharma, who has also detailed his own serious mental health concerns on Facebook.
"That has been one of the things members have wanted to be mindful of," Ms Ardern said.
Dr Sharma's suspension will have no impact on the Labour government's ability to pass legislation or govern, given its majority in parliament.
It is yet to be seen whether the 38-year-old will walk from the party and sit as an independent, which could trigger a by-election.
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