Prime Minister John Key has announced sweeping changes to GCSB's powers, saying failure to do so would leave New Zealand's national security open to threat.
"As Prime Minister I am simply not willing to do that. To do nothing would be an easy course of action politically, but it would be an irresponsible one.''
Mr Key said the GCSB has stopped providing support to agencies like the New Zealand Security Intelligence Service (NZSIS) and the police as it had done for more than 10 years.
"It is now the responsible thing to do to clarify the legislation, to make it clear the GCSB can provide support to agencies which are undertaking their lawful duties.
"To do anything less would be to leave our national security open to threat, and as Prime Minister I am simply not willing to do that.''
Mr Key announced the GCSB would provide information assurance and cyber security advice to both public and private sector organisations.
The GCSB would assist with other entities such as the NZSIS, New Zealand Defence Force and police while retaining its foreign intelligence powers.
A 2003 law change prevented the GCSB from spying on New Zealanders.
Mr Key said the GCSB will maintain its three main functions - information assurance and cyber safety, foreign intelligence and cooperation assistance to other agencies.
"With regards to the three main functions, the Act will be amended to make it clear the GCSB can use its powers when undertaking activities in all of these areas, subject to controls and conditions.
"We intend to make it clear the GCSB can undertake activities on behalf of other named agencies where those agencies can lawfully undertake those activities.
"However, Ms Kitteridge's review shows difficulties of legal interpretation around the GCSB Act as well as compliance and cultural issues within GCSB.''
A section of the Act which prohibits activities involving New Zealanders, will be retained but will apply only to the foreign intelligence function of the GCSB, and not to the other two functions.
Mr Key said the changes would be subject to enhanced oversight arrangements.
These include:
* The pool of candidates who are able to perform the role of Inspector General will be widened, by removing the requirement that the person be a retired High Court judge. This will broaden the range of experience and capability available to the role. For example, Australia's equivalent is a former ombudsman.
* The Inspector General's office will be made more proactive, taking it a step further from the role it currently has, which is more review-focused. The office will be able to undertake its own inquiries more easily, and each year it will be expected to specifically note publicly its view on whether or not the agencies it oversees are compliant with the law.
* The Government will increase the scope of the Inspector General's active review programme to include a much broader range of the agency's activities. This will have the effect of making the Inspector General's role more proactive.
* The resourcing and staffing of the Inspector General's office will be increased, and the new role of Deputy Inspector General will be created.
* Legislation will explicitly expand the Inspector General's work programme, including compliance audits and greater reporting responsibilities. GCSB's own quarterly reporting processes will be tightened up.
* The Inspector General's work will become more transparent, through greater public availability of the Inspector General's reports and views.
Mr Key has also released the terms of reference for an inquiry into the leaking of Cabinet Secretary Rebecca Kitteridge's compliance review of the Government Communications Security Bureau.
Last week, Fairfax media published the finding early, which forced the Government to release the damning report by Ms Kitteridge.
Mr Key said the report had found serious issues with the GCSB, and said as minister responsible, he would endeavour to put operational matters right.
The report has been commissioned by Andrew Kibblewhite, the chief executive of the Department of the Prime Minister and Cabinet, and GCSB director Ian Fletcher.
They have appointed David Henry to conduct the inquiry.
Mr Henry is a former senior public servant whose roles have included Commissioner of Inland Revenue, Chief Electoral Officer, Electoral Commissioner and Commissioner on the Pike River Royal Commission.
He will present his findings at the end of May.
The terms of reference for the inquiry include determining how the information was released early, and by whom.
The inquiry would make recommendations on how to improve the internal information
management process, based on any lessons to be drawn from the inquirer's investigations.
The inquiry will be carried out in two stages.
Stage one will include an investigation of everyone who had a copy of the compliance review report and their offices.
This will include looking through all communications, copying equipment, records, log books and other relevant material.
Stage two will involve formal interviews if the inquirer believes they are warranted.
By Kate Shuttleworth @K8Shuttleworth Email Kate