Labour's alliance with the Greens means it's moving out of the middle ground of New Zealand politics, Prime Minister John Key says.
"The more they want to do that, the happier I'll be," he told reporters on Wednesday.
Labour and the Greens announced on Tuesday they had agreed to work together in the lead-up to next year's election.
They aim to present themselves as a stable government-in-waiting, but the agreement doesn't go as far as running a joint campaign.
Mr Key says it's further confirmation that Labour is moving towards the left, and towards the "extreme position" held by the Greens.
"I think they are vacating the middle ground and I think middle New Zealand will see that," he said.
"What it shows is what we have been seeing for quite some time - Labour's decision making and policies in areas like trade, to a certain degree security, and in other areas, have been moving more towards the Greens' position."
Labour and the Greens are vowing to oust National in the 2017 election and say they would welcome other parties joining them.
On current polling they are well short of winning enough seats to form a government, and would need NZ First's support.
Party leader Winston Peters has ridiculed the agreement and says he won't have anything to do with it.
"We don't like jack ups or rigged arrangement behind peoples' backs," he said.
"None of this is going to have any effect on me or my party whatsoever," he said after the agreement had been announced.
At the joint press conference called to announce the agreement, Labour leader Andrew Little and Greens' co-leader Metiria Turei were asked what would happen post-election if Mr Peters demanded a deal with Labour that would keep the Greens out of government.
They didn't give straight answers to that, and wouldn't say whether the agreement would survive if Mr Peters wanted it torn up.
Although the agreement doesn't commit the parties to joint policies or a joint campaign, it's a strong indication that's what will happen.
And to demonstrate their togetherness, Mr Little is going to speak at the Greens' annual conference in Christchurch at the weekend.
"It's our intent to build on this agreement to offer New Zealanders the basis of a stable, credible and progressive alternative government at the 2017 general election," Mr Little said.