Key said current laws did not address the risk posed by radicalised fighters returning to New Zealand after exposure to the Islamic State (IS) organisation, also known as ISIS or ISIL.
"We know that a small number of New Zealanders have travelled overseas to engage in the fighting. We're also aware of people within New Zealand who have a desire to travel and fight for ISIL," he said.
Key said that, as a result, authorities had lifted the terrorist threat level in New Zealand from "very low" to "low", the third level on a six-rung scale, meaning an attack was considered "possible, but not expected".
The conservative leader said New Zealanders could not be complacent about the threat from returning fighters or people who may have fallen under the influence of the IS jihadists' "sophisticated" recruitment propaganda through platforms such as the Internet.
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Key refused to say how many New Zealanders were believed to be fighting for the IS group at the moment, how many had returned to the country and how many had been prevented from going overseas because they intended to join the jihadists.
He said the government had ordered a four-week review of laws relating to foreign fighters and would look at issues such as whether security agencies had sufficient powers to "investigate, restrict and disrupt" their activities.
The review would also examine the Australian and British responses to the foreign fighter issue to determine if new criminal offences needed to be created to deal with the threat, he said.
"Just six to 12 months ago, this was a far less significant threat than it is today. That's true internationally, if you look as ISIS two years ago it was a vastly different organisation to the one we see today.