Mr Dunne said "any further dilution" of the testing requirements would not only make a testing regime inadequate, but would encourage campaigners to seek an outright ban on animal trials in New Zealand.
"I believe [it] will also provide momentum to a much wider campaign of removing animal testing from a range of other areas such as cosmetic, veterinary, agricultural, food and medicine products."
Mr Dunne went on to say that he could not give his assurance to Mr Key that a regime which included animal tests would get support in the House.
As a result, he recommended that Cabinet should ban the use of animal trials to support drug approval applications until there were robust, non-animal tests to determine the toxicity of these drugs.
The Psychoactive Substances Act passed into law in July. It allowed some synthetic drugs to be sold under temporary licences until a more rigorous testing regime was in place.
These interim approvals would have been scrapped when once the testing system was up and running.
But a public backlash to the drugs meant this deadline was brought forward to April, when 35 products were removed from shelves and some retailers were forced to close.
In a note to Cabinet, Mr Dunne said the interim regime was "no longer tenable" because of the adverse effects and unclear risks of products that had been given temporary approval.
A Cabinet paper warned that when the products were pulled from stores, between 120 and 160 people could be dependent on psychoactives and would suffer withdrawal symptoms.
It said there was sufficient capacity within the health sector to cope with synthetic drug-related admissions.
The paper also predicted illegal stockpiling of drugs, and said that the ban would cost synthetic drug sellers and manufacturers $60 million in the following six months.
Read the released documents online here
