Prime Minister John Key has ordered an inquiry into the Government Communications Security Bureau (GCSB) after the unit's staff were alleged to have unlawfully acquired communications relating to the Megaupload case.
The demand follows claims of illegal interceptions of information by the nation's secretive intelligence agency relating to the Kim Dotcom trial, with the Crown filing a memorandum in the High Court advising the judiciary of events.
In a statement, Key says the GCSB "acted unlawfully while assisting the police to local certain individuals subject to arrest warrants," by acquiring some communications without authoritave approval.
"I expect our intelligence agencies to operate always within the law," Key says.
"Their operations depend on public trust.
"I look forward to the Inspector-General's inquiry getting to the heart of what took place and what can be done about it.
"Because this is also a matter for the High Court in its consideration of the Megaupload litigation, I am unable to comment further."
Key has assigned inspector-general of Intelligence and Security Paul Neazor to investigate the allegations, with the PM also seeking recommendations to prevent a repeat in the future.
With an extradition case against Dotcom scheduled for March 2013, the news follows the Megaupload founder's recent trip back to court last week to face a U.S. appeal against disclosure rulings regarding their case before next year’s hearing.
The U.S. government lawyers are currently trying to overturn a ruling which would force Dotcom to unveil “billions” of documents but Dotcom told reporters his accusers were "just dragging things out."
"If it was up to them, we would have no money for our legal defence, no evidence to defend ourselves, we would not even have our own computers back to show our own evidence," he said last week.