The Social Democrat leader spoke as Swedish trade union giant Kommunal, which also owns several properties in central Stockholm, continued to face trouble over claims it had rented out its apartments to labour movement bosses while refusing to release them to the public housing queue.
Wallström was one of the left's "high-profile figures" who in deference to their positions were rented apartments in the Swedish capital, avoiding a wait of on average eight years like ordinary renters.
Speaking to the TT newswire on Sunday, Löfven said his ministerial colleague was guilty of no wrongdoing, but that he was sorry the issue had arisen in the first place.
“I think it would have been better if she had sorted accommodation in a different way. There's no formal error, as far as I know, but it would have been better,” he said.
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Wallström told reporters last week that she had acted in good faith when she rented a temporary apartment from the Kommunal trade union, saying she had been "lied to" and told at the time that she “was not going to jump ahead of anyone on the waiting list”.
But Kommunal chairperson Annelie Nordström said the minister had misunderstood and that her apartment was reserved for short-term rentals, meaning that she had not bypassed the queue.
Asked to comment on the two different versions of events on Sunday, Löfven threw his support behind Wallström.
"I have been given information by Margot Wallström about how it happened and she has given it to media as well. I have no reason to believe anything other than that it is correct," he said.
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But Moderate leader Anna Kinberg Batra, the head of Sweden's biggest opposition party, said that the apartments scandal emerged at an inopportune time for the foreign minister, who was declared persona non grata by Israel only last week after commenting on its conflict with Palestine.
“It's embarrassing for Margot Wallström this, after continuously landing herself in hot water, but our criticism of her is above all political, in terms of foreign policy,” she told TT.
The apartments reports are part of an investigation by Aftonbladet which has seen Kommunal forced to defend itself against claims of porn shows, booze parties and costly travels. Its treasurer Anders Bergström stepped down on Thursday following the accusations.