Internet tycoon Kim Dotcom is pictured during a press conference at his Auckland mansion on January 20, 2013. New Zealand unveiled plans Monday to allow its foreign intelligence agency to spy on local residents, to fill a loophole exposed when Dotcom was illegally snooped upon.

New Zealand unveiled plans Monday to allow its foreign intelligence agency to spy on local residents, to fill a loophole exposed when Internet tycoon Kim Dotcom was illegally snooped upon.

Prime Minister John Key said the Government Communications Security Bureau (GCSB) needed additional powers because the challenges facing intelligence agencies had changed enormously in the past decade.

"In large part, this is due to the rapid evolution of technology in areas like cyber-security and the threat of cyber-attacks," he said.

"It's vital that legislation in this area is fit for purpose and keeps pace with changes in the operating environment, while also safeguarding the rights of law-abiding New Zealanders."

Existing legislation says the GCSB is supposed to focus on foreign intelligence and cyber-security, explicitly forbidding it from spying on New Zealand citizens or residents.

But it was revealed last year that it spied on Dotcom, a German national with New Zealand residency, before armed police raided his Auckland mansion in January 2012 and arrested him for online piracy.

Key issued a public apology to Dotcom and a subsequent inquiry released last month found another 88 New Zealand citizens or residents may have been illegally spied on. Details of the cases were not released.

Under reforms to be introduced to parliament this week, the GCSB will be able to spy on New Zealanders provided it receives permission from Key, who holds ministerial responsibility for the agency.

Dotcom has received clearance from the New Zealand courts to attempt to sue the GCSB and police, alleging wrongful arrest.

The opposition Labour Party said extending the GCSB's powers was a "band aid" solution that did nothing to address a lack of oversight which had shaken the public's trust in intelligence agencies.

"The state should not extend its powers to spy on citizens lightly... (John Key) is asking New Zealanders to trust him to personally to decide who can be spied on, despite his record of lax oversight of the GCSB," Labour leader David Shearer said.

Dotcom, 39, was arrested by New Zealand authorities cooperating with a massive US probe into online piracy.

US authorities allege his Megaupload and related file-sharing sites netted more than US$175 million and cost copyright owners more than US$500 million by offering pirated copies of movies, TV shows and other content.

Dotcom, who changed his name from Kim Schmitz, denies any wrongdoing and is free on bail in New Zealand ahead of an extradition hearing scheduled in August.

Explore further NZ court backs Dotcom's right to sue spy agency

© 2013 AFP