Forest & Bird says the Government urgently needs to fund wallaby control before the pest reaches plague proportions.
Twenty to 30 wallabies are being seen a night around the Rotorua lakes and they are edging closer to Te Urewera and the Kaimai Ranges where they could be "disastrous", according to the conservation organisation.
The pests have the potential to be the "possum problem of the 21st century" if nothing is done to stop the spread, according to Department of Conservation Eastern South Island director Andy Roberts.
The department estimates the small marsupials could occupy up to a third of New Zealand within 50 years, if they continue to spread at current rates.
Forest & Bird's Central North Island regional manager Dr Rebecca Stirnemann describes wallabies as "giant rabbits" which reduce native plants and tree species by 57 per cent.
"They pose an enormous threat economically and environmentally."
She said wallaby numbers around the Rotorua lakes were "dangerously high" and the pests could move long distances quickly.
In 2017-2018, about $1.38 million was spent on wallaby control by local and central government and private landowners, she said.
"It's shocking that we're not putting more funding into dealing with this plague of wallabies that's moving across both the North and South islands."
Effective control would cost about $7m a year for 10 years, Stirnemann said. That could include hunting wallabies for meat.
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The Ministry for Primary Industries is the lead government agency responsible for wallabies, as wallabies are listed as an unwanted organism under the Biosecurity Act, but regional councils, Biosecurity New Zealand, farmers and the DoC all work together in the response.
The ministry's principal conservation adviser, Erik Van Eyndhoven, said despite wallaby sightings in Auckland, Northland, Hawke's Bay, Gisborne, Wellington, Marlborough, Southland and the West Coast, there was no evidence of established populations there.
"They are likely due to humans moving and releasing wallabies."
He said $329,500 was being spent from the Sustainable Farming Fund to identify the best wallaby detection method in New Zealand, "from a range of ground-based and aerial surveillance methods including innovative thermal imaging cameras".
The research will be publically available before the end of the year.
Bay of Plenty Regional Council biosecurity manager Greg Corbett said the council, alongside DoC and Waikato Regional Council, were focused on preventing dama wallabies spreading further.
"We are doing our utmost to stop them establishing in the Kaimai Range or Te Urewera."
He said the regional councils had increased annual spending on monitoring and controlling wallabies, and had budgeted more than $200,000 each for their respective wallaby programmes in the 2019/2020 financial year.
"However, central government support is desperately needed to effectively reduce their current populations."
He said detecting and limiting new populations was the council's priority followed by controlling and eradicating isolated populations "outside of or near to the margins of their current distribution".
"In the centre of their distribution - around the Rotorua lakes - wallaby control is the landowners' responsibility, however, the councils are able to provide advice around effective control methods."
DoC is spending $74,000 in the 2019/20 financial year to control dama wallabies in the Waikato and Bay of Plenty with the regional councils.
Its teams based in South Canterbury spend about $30,000 annually to aerially control wallabies, and the Te Manahuna/Twizel office has spent about $100,000 over the past three years controlling wallabies around the Kirkliston Range.
NZ's wallaby problem
• Dama wallabies are found in the Bay of Plenty, and Bennett's wallabies in Canterbury, and were introduced from Australia.
• They eat native trees and plants in the undergrowth of forests and compete with native wildlife for food, as well as damaging tall tussock grasslands, leaving bare ground and increasing soil erosion.