He claimed that Māori in 1840 meant "normal" or "common".
"It was not until 1850, 10 years after the Treaty was signed, that it was used to refer to native New Zealanders," he said.
The Government handed over the rights of all New Zealanders to Maori under the Foreshore and Seabed Act, he said.
"Don't think it's not happening. Just go to the south end of the beach at Whiritoa and try to go for a walk there. There is netting there - that's the Māoris trying to fence it off.
"It's separatism. This is apartheid. There is no definition of Māori ... You are Māori if you feel you are Māori."
Gallagher told Fairfax yesterday that he stood by the comments.
He had been speaking at a Christmas cocktail function hosted by the Waikato branch of the Institute of Directors, Fairfax reported.
Today, the organisation tweeted an apology.
"The Institute of Directors apologises for any offence caused at our Waikato Branch Christmas event. These views were personal and not reflective of the IoD," it said.
One audience member who wasn't named by the publication said the speech "started off all very convivial ... and then it went quite left-field".
He said the comments caused about half a dozen people to walk out of the function which was attended by between 70 to 100 people.