Megaupload founder Kim Dotcom during the launch of his new website on January 20, 2013. He and New Zealand Prime Minister John Key are set to come face to face for the first time Wednesday as lawmakers examine a controversial proposal allowing intelligence agencies to spy on local residents

Megaupload founder Kim Dotcom and New Zealand Prime Minister John Key are set to come face to face for the first time Wednesday as lawmakers examine a controversial proposal allowing intelligence agencies to spy on local residents.

Dotcom will appear in parliament to argue against the move at a select committee hearing chaired by Key, whose government signed off on Dotcom's arrest last year for alleged online piracy.

The pair have never met and Dotcom appears to be relishing the prospect of eyeballing Key, who issued a public apology to the Internet mogul last year after it was revealed authorities illegally spied upon him.

"It's ON," he tweeted Monday, adding: "If you want to witness John Key and the #GCSB (spy agency) getting exposed join me in Parliament this Wednesday. It's a public hearing!!!"

Key played down the prospect of a showdown with the flamboyant businessman, saying he did not expect any fireworks at the hearing.

"I can't see any particular reason why," he told TV3 on Tuesday.

"He gets 15 minutes (before the committee) like anybody else and he's free to use that time however he wants."

Existing legislation says the Government Communications Security Bureau (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.

As a result, Dotcom is suing the spy agency and the government has moved to close what it described as a technical loophole that limited the operations of its main spy agency.

Dotcom, who was arrested as part of a massive US investigation that closed down his Megaupload empire, said in a submission to the inquiry that the spy agency could not be trusted to respect the privacy of New Zealanders.

"Our own story shows that it is not just terrorists and extremists that can be targeted," he said.

Opposition parties and organisations such the Law Society and InternetNZ have raised privacy concerns about the proposals.

Key denies it gives spies greater powers, saying it allows the GCSB to cooperate more closely with agencies such as the police and military in an increasingly complex cyber-security environment.

"It's my view that they're not expanding, they're codifying in law with absolute clarity what has been the historical position for a long period of time," he said.