Plans to set up one of the largest ocean sanctuaries in the world could be open to legal challenges from iwi, Labour says.

"[We] welcome the establishment of the Kermadec Ocean Sanctuary but we do have concerns the Government's carefree approach is denying iwi involvement and could lead to legal challenges," Labour fisheries spokesman Rino Tirikatene said.

"Te Ohu Kaimoana [the Maori Fisheries Trust] hold significant quota for Maori in an area affected by the sanctuary and yet they weren't consulted. This is a breach of Treaty of Waitangi obligations.

"Closing a fishing area isn't like closing a paddock. You can't just move stock elsewhere and say that everyone is satisfied."

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Prime Minister John Key on Tuesday announced that the waters around the Kermadec Islands to the north of New Zealand will become one of the largest ocean sanctuaries in the world.

The protected area will be twice the size of New Zealand's land mass and 50 times the size of the country's largest national park.

"The new sanctuary will preserve the home of a huge range of species - millions of sea birds and whales and dolphins, endangered turtles and thousands of species of fish and other marine life will be better protected," Mr Key had said from New York.

The decision was widely celebrated, including by organisations and individuals who have campaigned for years for such a sanctuary.

WWF-New Zealand's chief executive Chris Howe said the creation of the massive ocean sanctuary put New Zealand "back at the forefront of marine protection on the global stage".

The Kermadec Islands have had a marine reserve around them since 1990 but this decision will extend it from 12 nautical miles to the 200 nautical miles of New Zealand's exclusive economic zone (EEZ).

Mr Key said the sanctuary would mean no fishing, commercial or recreational, and no prospecting or mining in the area. As well as marine life, the sanctuary would protect the ocean floor.

A Cabinet paper on the establishment of the Kermadec Ocean Sanctuary says that while the protected area will comprise 15 per cent of New Zealand's EEZ, there is little viable commercial fishing in the area so no compensation should be paid.

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"But the mining resources are potentially very, very large there, because there are unknown quantities of silver and other resources there," Mr Key said earlier this week.

"On the other side of the coin, we are also trying to protect what is, from a geological perspective, a very important and significant part of the world."

The sanctuary will cover 620,000 square kilometres. Mr Key made the announcement during the "leaders' week" at the UN General Assembly in New York.

Groups that have campaigned for the sanctuary include the Pew Charitable Trust, WWF New Zealand, the Royal NZ Forest and Bird Society, Greenpeace and Ngati Kuri.

Minister for the Environment Nick Smith said the sanctuary would require legislation and the aim was to have it in place by October 1 next year.

He said the decision was taken now to give certainty to a Canadian company, Nautilus Minerals, which had applied for a prospecting permit covering an area that was partly within the sanctuary.

Officials would work with the company to revise its application.

Dr Smith has also issued a statement saying: "Claims by the Labour Party of insufficient Government consultation with iwi on the Kermadec Ocean Sanctuary announced yesterday ignore the strong support of iwi for the new protection."

"Ngati Kuri and Te Aupouri - the two northern iwi with connections to the Kermadec Islands - both indicated their strong support for the new sanctuary prior to its announcement. These two relevant iwi have been pushing for the sanctuary proposal and so Labour's criticism that they were not consulted does not make sense," Dr Smith says.

"Te Ohu Kaimoana were also advised of the Government's decision prior to its announcement. Official records show that no fishing by Te Ohu Kaimoana has occurred in the sanctuary area over the past five years. This is a very remote area where there is fishing carried out by only a few companies, totalling 20 tonnes each year - equivalent to just 0.004 per cent out of New Zealand's average annual commercial catch of 449,000 tonnes.

"All New Zealanders, including iwi and Te Ohu Kaimoana, will have the opportunity to make submission when the legislation to create the Kermadec Ocean Sanctuary is introduced to Parliament."

Reserve v sanctuary

• What's the difference between the reserve and the sanctuary?

• The rules are stricter in a reserve.

• There is no fishing or mining in both but discharges from vessels will be allowed in a sanctuary and submarine cables are allowed, whereas they are not in reserves.

• Ships are able to travel easily through the EEZ.