Prime Minister John Key has announced a big shift in National's position heading into the next election by refusing to rule out a coalition deal with NZ First.

This is the first time Key has even contemplated going into government with NZ First leader Winston Peters after consistently ruling him out as a coalition partner since 2008.

The announcement comes on the same day Peter Dunne was welcomed back into the fold.

Key today announced the reshuffle of his Cabinet, returning Dunne as a minister and dumping Chris Tremain.

Dunne resigned as a minister last year after an inquiry into the leaking of a sensitive report could not rule him out as the source.

Along with a possible relationship with NZ First, Key is also leaving the door open to a deal with Colin Craig's Conservative Party, despite acknowledged policy differences.

Key said given the right electoral circumstances, his preference would be to continue working with the Government's three present partners: ACT, the Maori Party and United Future.

"I believe there is also a scenario where it would be possible to add the Conservative Party to this group," he said today.

"While National has of course had differences with ACT, the Maori Party and United Future, together our four parties have formed a stable and successful government since late 2008."

But while he said discussions with NZ First were "unlikely", he would not rule them out before the election.

"In 2008 we ruled them out because we were unable to reconcile some of their statements on the Glenn donation matter," Key said of NZ First.

"Six years has passed and, should NZ First be returned to Parliament, we would not rule out a discussion after the election."

Key said his stance had softened on Peters, and he would be prepared to hold talks if it came to it.

"It's not like in 2011 where if he held the balance of power I would have rung the leader of the Labour Party and said 'you're now the prime minister because I'm not going to work with the guy'."

Key ruled out working with the Greens and Hone Harawira's Mana party, saying there was not enough common ground to form a relationship.

"These parties represent a far-left-wing agenda that we do not believe is good for New Zealand," he said.

It's the first time Key has ruled out talking with the Greens. He said their economic and social agendas had become too far left, and he did not believe that was good for New Zealand.

"Labour are welcome to them," he said.

Key said the election would be a "tight contest".

"That means it's also likely that following the election we will need to work collaboratively with other parties to form a stable government," he said.

"First and foremost, National will be campaigning hard for every party vote it can win, because that puts us in the best position to continue the positive policy direction New Zealand is on.

"Looking ahead, it is most likely that the nature of these working relationships will be via confidence and supply agreements, as these have worked well in the past two parliamentary terms."

The announcement is a different strategy for the prime minister, who said he would cut the political game-playing. A staged cup of tea with ACT leader John Banks at a cafe backfired at the last election, after a furore over cameraman Bradley Ambrose who left leaving a recording device on the table and recorded their conversation.

CUNLIFFE CALLS HYPOCRISY

Labour leader David Cunliffe labelled Key's potential coalition arrangements "the dance of the desperate".

"Same old, same old, no matter what the baggage," Cunliffe said after Key discussed National's preferred political partners.

Cunliffe accused the prime minister of hypocrisy over his decision to reinstate Dunne as a minister and is softening his stance towards Peters.

"He [Key] wouldn't on principle work with Mr Peters," Cunliffe said.

"Now he says he will. He didn't trust Mr Dunne. Now he says he does, even though nobody knows who leaked the Kitteridge report.

"He thinks that the Greens are crazy but he wants to go into coalition with Colin Craig. I think you can see that his argument is not going to hold water."

It was unlikely any party would win enough votes to govern alone "and therefore it's a question of coalitions", Cunliffe said.

He ruled out working with ACT and with Conservative Party leader Colin Craig.

It was "extremely unlikely" Labour would work with Dunne, though he would not rule this out. Labour would work with NZ First "and my door is open to others", Cunliffe said.

An arrangement with NZ First that would see them sitting on the cross benches and abstaining in confidence and supply was also possible.

"The first thing is to let all parties make their case to the New Zealand people, that's the beauty of democracy, the New Zealand people get to decide who goes to Parliament by their party vote."

Labour had spoken with the Greens about a cross-party agreement, but it had not talked to other parties.

With Key accepting that Dunne had not leaked the report, Cunliffe asked what would be done to find out who did.

PETERS: NO COZY CHATS

Peters said he was not at all concerned about Key's comments.

The party would examine its strategic options, but only after holding meetings with party members and voters.

"We're not going to go into cozy chats and cups of coffee and pre-election deals behind the public's back," Peters said.

Before the 2011 election NZ First said it would not work with either side in Government because the parties of either side were incompatible on key issues.

While he refused to say whether NZ First would consider offering a National-led Government an agreement to back it or abstain on issues of confidence and supply, he ruled out "totally the idea of going to Parliament to abstain on crucial votes".