Ministers have gone against an Overseas Investment Office recommendation, declining a bid by Chinese-owned Pure 100 Farm Ltd to buy Lochinver Station.
The Overseas Investment Office had recommended it be accepted in what Associate Finance Minister Paula Bennett described as a "finely balanced" decision.
However, ministers did not believe the benefits to New Zealand were great enough and used their discretion to reject it.
"While the OIO said the question of whether the benefits or the potential investment to New Zealand are, or could be, substantial and identifiable was finely balanced, it recommended approving the application.
"We agreed parts of the proposed investment could benefit New Zealand but our judgment on the overall balance of evidence the benefits are not likely to be substantial and identifiable."
It is the first time ministers have rejected a bid to buy a significant landholding in New Zealand since the rules were tightened in 2012, during the Crafar Farms decision, to require the OIO to assess whether a foreign buyer could offer more than a New Zealand buyer would.
Pure 100 Farm is a subsidiary of the China-based Shangahai Pengxin and applied last year to buy the 13,800ha farm, located 32km from Taupo and 92km from Napier, for $88 million.
Ms Bennett said, while ministers recognised the importance of overseas investment, it was a privilege to own "sensitive" New Zealand assets and investors had to meet statutory requirements set out in the Overseas Investment Act.
"After detailed and careful individual consideration, we are not satisfied there will be, or is likely to be, a substantial benefit to New Zealand - a key requirement for applications of sensitive land of this size."
NZ First deputy leader Ron Mark said the ministers' decision to block the sale was "baffling" given the Government had signed off on significant land sales in the past.