A complaint has been lodged with the Inspector General of Intelligence and Security claiming the GCSB has broken the law by spying on Kiwis holidaying, living and working in the Pacific.
It is a direct challenge to the Prime Minister's assertion the Government Communications Security Bureau acts legally.
The Green Party complaint was lodged after documents from whistleblower Edward Snowden showed there was "full take" collection of satellite communications in the Pacific by the GCSB.
This morning, former director of the GCSB Sir Bruce Ferguson told Radio New Zealand that mass surveillance was being undertaken in the Pacific, and it was "mission impossible" to eliminate New Zealanders' data from the collection.
"It's the whole method of surveillance these days - it's mass collection. To actually individualise that is mission impossible," he said.
He said he supported Mr Key's assurances that the GCSB were not spying on New Zealanders. Sir Bruce said it wasn't happening "willingly" or intentionally".
"I'd back those assurances up certainly for my time, nothing illegal is happening there."
He said the data of New Zealanders collected would be "discarded" and not used.
New Zealanders had never been targeted by the GCSB without reason, he said.
Following Sir Bruce's, comments, Dr Norman said Mr Key now needed to "put up, not shut up".
"Both the American National Security Agency (NSA) papers and Sir Bruce have confirmed there is "full take collection" in the Pacific.
John Key needs to justify how that spying squares with our law.
"I challenge John Key to point to anywhere in the law that says this kind of mass indiscriminate spying on New Zealanders and the wholesale collection of our data is legal," Dr Norman said.
He said he asked the IGIS to look into the latest revelations and whether the GCSB had broken the law because Mr Key would not front with answers.
"We have asked the IGIS to look at whether it is legal for [the GCSB] to spy on all New Zealanders in the Pacific, including citizens of Niue, Tokelau and the Cook Islands who are all New Zealand citizens by birth."
Once intercepted, it was claimed the information was sent to the United States' National Security Agency where intelligence agencies from friendly countries could search it by name, keyword or other identifying details.
The documents were detailed in a collaborative reporting project between the Herald, investigative journalist Nicky Hager and Intercept, a news site with access to the Snowden trove.
The timeframe at issue is from 2009 - when the documents record "full take collection" was about to begin - through to mid-2012, when Snowden quit his job with information he had taken.
At the time, the law stated the GCSB was not allowed to do anything which led to communications of a New Zealand citizen or resident being intercepted.
Accidental interception of New Zealanders' communications was meant to be destroyed as soon as possible.
The complaint from Greens co-leader Russel Norman to Inspector General Cheryl Gwyn - who would not comment yesterday - alleged "mass surveillances" of Kiwis throughout the Pacific region.
John Key yesterday rejected the Herald story. "Some of the information was incorrect, some of the information was out of date, some of the assumptions made were just plain wrong."
He added: "Everyone is 100 per cent confident our legal position is correct."
He would not speak in any further detail, but told a reporter at a press conference who asked about "full take": "With the greatest of respect, I don't actually think you understand the technical term and it's not my job to explain it to you.
"Where we gather intelligence, particularly if there is a friend involved, then that isn't to harm that particular organisation or country. That is to support them, or assist them."
Tech Liberty's Thomas Beagle said spy agencies exposed in the Snowden files tried to claim legality by interpreting the law in a particular way.
He said, in the New Zealand example, the argument could be made that "interception" of communications did not take place at the point Waihopai's satellites took a broad swathe of signals from the sky.
Instead, the "interception" was considered to have occurred when analysts used search terms to find specific information from the morass of data.
Mr Beagle said he did not agree with the interpretation.
Poll suggests most 'fine' with bugging neighbours
A majority of respondents to an online survey are "fine" with revelations that New Zealand's electronic spy agency intercepts communications in the Pacific.
An online unscientific Herald poll of up to 11,600 people showed more than 50 per cent of people said they were "fine with it". Some 42 per cent replied to say they were "incensed - this is unacceptable". Six per cent did not believe the claims were true.
Pacific leaders here felt such a move had the potential to change traditionally close relationships between Pacific countries and New Zealand.
Tongan community leader Melino Maka said many within the Pasifika community would be upset, but also intrigued as to why New Zealand felt it needed to gather information.
"What's so significant in the Pacific that we need to report on it to the US? Friends don't do this. It's like me and you are friends, but I spy on you - it feels weird. The fact we weren't told is sad."
Mr Maka acknowledged he was already somewhat aware this was happening in the Pacific, after a brief conversation he had with the then NZ High Commissioner for Tonga at a funeral in the island nation was revealed in the WikiLeaks saga in 2006.
"I read that in the Herald and I was shocked. We were talking at a funeral - I didn't know he would go back and record that."
Mangere MP Su'a William Sio said the Government needed to contact Pacific leaders to discuss the claims.
"I think a lot of the Pacific countries will be very surprised because friends don't spy on friends."
- with additional reporting by NZME.
Read the Herald's spying revelations, plus documents and video: tinyurl.com/snoopnz