The New Zealand Prime Minister John Key says he is "very disappointed" government spies were found to have illegally bugged millionaire Kim Dotcom, but refused to comment on why they did it.

An extradition case against Dotcom is now at risk after it was yesterday revealed that the Government Communications Security Bureau (GCSB) unlawfully snooped on Dotcom and co-accused Bram van der Kolk.

"I'm now a real life James Bond villain" ... Kim Dotcom.

It appears the blunder occurred because security services were unaware Dotcom, a German, and his co-accused were New Zealand residents. The GCSB is only permitted to monitor foreign intelligence.

Key said he did not sign any warrants allowing Dotcom's communications to be intercepted because the law was quite clear that was illegal where New Zealand citizens or residents were involved.