New Zealand Prime Minister John Key was accused on Tuesday of being involved in an abuse of power after an independent watchdog found the political neutrality of the security services had been compromised to embarrass an opposition leader.

The allegations stemmed from events before the 2011 election when then-Labor Party leader Phil Goff claimed he had not been party to a briefing by the New Zealand Security Intelligence Service chief about alleged Israeli spies being caught up in the Christchurch earthquake in February 2011.

Briefing notes released under the Official Information Act to a right-wing blogger had appeared to contradict Goff's claim that he had not been included in the briefing as he was entitled to be.

An inquiry by the inspector-general of intelligence and security, Cheryl Gwyn, found that the NZSIS released incomplete, inaccurate and misleading information to the blogger.

It also provided some of the same incorrect information to Key, who is also the minister responsible for the NZSIS, and the Prime Minister's Office, where staff tipped off the blogger about making the request for the information.

The errors resulted in misplaced criticism of Goff, who was owed a formal apology by the NZSIS, Gwyn said in a statement on the release of her report.

Gwyn found no evidence of political partisanship by the NZSIS, but did find that the NZSIS failed to take adequate steps to maintain political neutrality.

Smear campaign

"Having released inaccurate information that was predictably misinterpreted, the then-director of the service had a responsibility to take positive steps to correct the interpretation. He failed to do so," Gwyn said.

The NZSIS director at the time, Warren Tucker, had accepted many of the shortcomings identified and had taken personal responsibility for the actions of the NZSIS, she said.

Key claimed to have been cleared in the report of personal involvement in the information release, which has been described as a smear campaign.

"I have received an unreserved apology from the NZSIS for providing incomplete, inaccurate and misleading information to my office," Key said in a statement.

However, Goff said the report demanded, at the very least, accountability from Key for the actions of his office, which he had failed to rein in.

"Mr Key deliberately allowed the politicization of the SIS by his staff, in a way that fundamentally undermines its political neutrality," Goff said in a statement.

"The political damage before the 2011 election cannot now be remedied. Mr. Key is now obliged to take responsibility for the actions of his staff."

The opposition Green Party issued a statement demanding a Royal Commission of Inquiry into the matter, adding Key could not claim to know nothing about abuses of power "when his most senior staff were engineering it".