Prime Minister John Key is under fire for failing to halt the GCSB's surveillance of New Zealanders when he was first told of potential legal problems with that work in July last year.
But Mr Key has defended that decision as his Government pushes for a law change that would ensure future GCSB surveillance of New Zealanders on behalf of the SIS and police is beyond legal challenge.
In the fallout from Cabinet Secretary Rebecca Kitteridge's report revealing the GCSB may have illegally spied on New Zealanders 88 times in the past decade, Mr Key has faced claims he misled the public about the matter. The Opposition are calling for an independent inquiry into the affair.
Mr Key said GCSB director Ian Fletcher first mentioned a "potential issue" with him last July and the matter was "unresolved" when the GCSB halted its assistance to the SIS and police in September because of the Dotcom case.
However, Labour Leader David Shearer said that was inconsistent with Mr Key's comment in September that he had never had advice in four years as minister responsible for the GCSB "that they in any way ever acted unlawfully" apart from in the Kim Dotcom case.
Mr Key yesterday stood by that comment saying that despite questions raised by Inspector General of Intelligence and Security Paul Neazor, "the advice I had from both the GCSB and SIS legal teams was that they believed, and I might add continue to believe, that the work that they were doing was absolutely legally correct".
However, Mr Shearer said "if there was any question that these intelligence agencies were spying illegally they should have stopped the spying then and there".
In snap debate yesterday, Labour deputy leader Grant Robertson said that after learning of the potential problems in July, Mr Key had "covered up that fact".
"What is worse is he did nothing about that information."
Mr Shearer and Green Party co-leader Russel Norman say they will oppose the Government's proposed overhaul of the GCSB Act. Government support partners United Future and Act said they wanted to see what was being proposed before deciding whether to support it.
Mr Robertson said there was never any intent in the GCSB act that the bureau would spy on New Zealanders because of the fact it worked closely with foreign Governments.
"The SIS can spy on New Zealanders because that information will stay in New Zealand."
But Deputy Prime Minister Bill English said Section 14 of the 2003 act, which prevented the bureau spying on New Zealanders, was only included in the legislation by then Prime Minister Helen Clark "to get the votes in the House".
The issue was not whether New Zealanders could be spied on "because they can" but "the issue here is whether the SIS can use the GCSB to carry out some of that function".
"The assumption has always been that they can."
Meanwhile, Mr Key yesterday said he was considering an inquiry into how Ms Kitteridge's report was leaked to the media this week.
By Adam Bennett Email Adam