The Islamic State's recruitment of foreign fighters has slowed significantly, Defence Minister Gerry Brownlee says, as the US-led coalition increasingly cuts off sources of funding to the extremist group.
Mr Brownlee is in Brussels for a meeting of countries involved in the fight against the Islamic State (Isis) in Iraq and Syria.
He said the gathering was an opportunity to assess the progress in combating Isis, and reports at the meeting were encouraging.
Iraqi security forces were pushing Isis forces back and gaining significant tracts of land, though its members still held two large cities, Mosul and Raqqa.
It was an "optimum time" to knock Isis back even further, Mr Brownlee said, because its recruitment efforts were "on the downward spiral".
At one point Isis was estimated to be gaining 1500 new recruits a month, but that number is believed to have dropped to around 400.
This was the direct result of action taken to limit funding to the extremists, Mr Brownlee said.
The minister said it was now clear that Isis' goal of a forming a caliphate was no longer a prospect.
But this raised concerns that its members would spread across more countries, from Libya through to Morocco.
There was also "fertile ground" for the growth of Islamic extremism in Southeast Asia.
"Those countries are very aware of that and certainly don't want them in their structures at all," Mr Brownlee said.
United States Defence Secretary Ash Carter asked for countries at the Brussels meeting to step up their efforts against Isis.
New Zealand is one of 60 countries in the US-led coalition, of which 24 countries are making a military contribution.
New Zealand's main contribution to the fight against Isis is a deployment of 145 military trainers to Camp Taji, near Baghdad, where they are training local forces.
The non-combat deployment is expected to last two years, though it could be extended.