A lawyer for internet tycoon Kim Dotcom says unlawful spying on the tycoon is deeply concerning.
Prime Minister John Key says the snooping on Kim Dotcom by the Government Communications Security Bureau (GCSB) was outside the law because the Megaupload founder, who is facing internet piracy charges in the US, is a New Zealand resident.
He said warrants were needed when the people involved were citizens or residents, and in those cases the Security Intelligence Service gathered information.
Dotcom's US-based lawyer Ira Rothken welcomed an inquiry into the spying announced by Mr Key on Monday.
"We won't comment on how it's going to impact the case, if at all, but we're deeply concerned that there appears to be allegations of domestic spying on residents which bypasses the judicial process and checks and balances on privacy," he told Radio New Zealand.
"If there's spying going on and they're intercepting communications with the folks involved in Megaupload and Kim Dotcom and the legal team, certainly we'd want to know about it, and you would hope that there would be appropriate remedy."
Mr Rothken said New Zealand law protected against this sort of activity but said the spying was no surprise given the zeal with which the US and New Zealand had prosecuted the case against Dotcom and three associates.
Dotcom reacted to the announcement by tweeting that he felt like "a real life James Bond villain in a real life political copyright thriller scripted by Hollywood and the White House".
He is facing internet piracy and money laundering charges in the US, with extradition proceedings due to start in March.
Mr Key said in his announcement he was disappointed that "unlawful acts" had taken place.
Opposition parties want to know why the GCSB was involved at all when Dotcom isn't a threat to New Zealand's national security.