AgResearch experiments on genetically modified goats have resulted in the animals producing mostly transgender offspring, which are being milked to find out whether they carry the intended human protein.
The goats have been bred on the state science company's Ruakura facility in Hamilton, where experiments are being done to create pharmaceuticals.
Soil and Health New Zealand spokesman Steffan Browning, who recently toured the facility, said 75 per cent of the goats were females in sterile male bodies. AgResearch staff refer to them as "goys".
AgResearch's general manager of applied biosciences, Dr Jimmy Suttie, said the goats were transgender because of the cell line used to produce them, and had nothing to do with genetic modification.
"It was inadvertent. This is something which normally happens about 10 to 15 per cent of the time in this breed of goat. It just happens to be the cell line that was used."
Dr Suttie said it did not raise animal welfare issues.
"We take animal ethics very, very seriously at AgResearch. All these experiments are supervised by vets and the animal ethics committee, and they have given us no concerns at all."
Facility manager Tim Hale confirmed some of the "goys" had been induced into lactating and were being milked.
"It has happened but I'm not sure of the result. It has only recently happened," he said.
Mr Browning said the level of contaminated surface water draining off the facility was also of great concern because of the risk of horizontal gene transfer.
The transfer of genetic material from an organism to another which is not its offspring has been raised by GM critics as a potential risk of the technology because altered genes could be passed on to other species.
He said AgResearch should be closed immediately.