Nicky Hager knew information given to him by a hacker had been taken illegally, the Crown has argued.
The Dirty Politics author and investigative journalist is seeking a judicial review into the steps taken by police during a raid at his home last October.
The raid was carried out following a complaint from blogger Cameron Slater, who claimed his emails had been illegally hacked.
The emails taken from Slater were then disclosed to Hager, and formed the basis of his tell-all book Dirty Politics.
The object of the police search was to discover the identity of the hacker who had disclosed information to Hager.
During the raid at Hager's home, a number of documents were confiscated, including physical records, computers, CDs, phones and USB drives.
On the second day of the judicial review hearing in the High Court at Wellington, Crown lawyer Brendan Horsley said Hager knew information given to him by the hacker, who goes by the name of Rawshark, had been taken illegally.
Hager claimed to have tested the motives of the hacker to see if they were politically-motivated, Mr Horsley said.
He said Rawshark dealt with Hager more than other journalists, and the hacker released more information online.
Earlier, Hager's lawyers gave further examples of why they considered a warrant for police to search the journalist's home to be illegal.
Lawyer Felix Geiringer said police had other ways to find the hacker, as well as inquiries underway that they should have made clear to the judge issuing the search warrant.
He said police had no idea who the hacker was when they searched Hager's home.
They took documents that had the details of 40 of Mr Hager's sources - six of whom were confidential.
Mr Geiringer said police should have finished investigating Mr Slater's computer and tweets linking to hacked information.
The hearing before Justice Denis Clifford is set down for three days.