Prime Minister John Key and his Australian counterpart Julia Gillard have announced a new Trans-Tasman agency regulating medicines and medical interventions.

Mr Key told a joint media conference this afternoon the decision to set up an Australia New Zealand Therapeutic Products Agency (ANZTPA) was "very pleasing".

The new agency would regulate medicines, medical devices and new medical interventions such as cellular therapy, he said.

It was expected to take five years to establish.

"We want to build the capability to ensure new medical technologies are safe to use, and are used safely, in New Zealand.

"New Zealand's regulatory arrangements for medicines and medical devices need to be updated, and this is a cost-effective and comprehensive way of achieving this."

Ms Gillard also welcomed the new agency, saying it showed the spirit of cooperation between Australia and New Zealand.

But the Green Party said the new agency would undermine New Zealand's sovereignty.

MP Sue Kedgley said it would see Australians dictating what happens in New Zealand.

"The new agency will be based in Canberra, staffed by Australians and dominated by Australia. New Zealand will have very little influence."

The ANZTPA will not initially regulate natural health products.

However, Mr Key said those products could be included in joint regulatory arrangement if both countries agreed to the change after a review in five years time.

Ms Kedgley said she was pleased Government was taking steps toward setting up a New Zealand-based regulator for natural health.

"However, we sincerely hope this isn't a back-door-way of absorbing natural health products into a heavy-handed Australian scheme when it's reviewed."