Mr Key rejected the allegation this afternoon. He said of Mr Peters: "His eyesight is failing him."
The Prime Minister's office also confirmed that Mr Key, who is visibly greying on the sides, did not dye his hair.
Mr Peters had apparently taken offence at comments the Prime Minister had previously made about his age.
"Mr Key has been taking to telling some of your colleagues about the question of age," he said to reporters.
"And I said well frankly if I happened to dye my hair whilst I'm losing it, I'd leave out the question of age.
"I'm just telling the Prime Minister: 'For God's sake don't get personal cos you'll get that sort of thing back'."
Mr Key is not the first party leader to have his hair colour scrutinised. Former Labour leader Phil Goff returned from a summer holiday in 2011 with newly-coloured locks, which overshadowed his State of the Nation speech.
During his speech today Mr Peters also gave further hints that he could run in the by-election in Northland, which came after the resignation of National MP Mike Sabin last month.
"Help is on the way", he said to Northlanders.
He would not confirm his intentions, but later said the electorate needed an MP with a few terms of Parliamentary experience.
Mr Peters said his party, which won 13 per cent of the vote in Northland at the election, was doing some background research on the electorate.