The Prime Minister is describing a $150,000 donation to the National Party in 2016 as "outside the spirit of the law".
Jacinda Ardern's comments followed NZME's revelation that National received the donation through a New Zealand-registered, but Chinese-owned company.
"Arguably, what happened here was legal, but equally it was outside the spirit of what our law intends when it comes to foreign donations," Ardern said Monday morning.
"The story that you've seen in the news today is outside the spirit of the law."
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The Chinese-owned company, Inner Mongolia Rider Horse Industry NZ, is owned by billionaire racing mogul Lang Lin, who according to NZME, met with then-Foreign Minister Todd McClay in 2016.
Former National MP Jami-Lee Ross is accusing McClay of facilitating the donation.
National leader Simon Bridges disagreed that the donation was outside the spirit of the law.
"I think it's reasonably straight forward: You've got a situation where there was a disclosure a couple of years ago, it is a New Zealand company, and there is no conflict of interest," he said Monday morning.
"The rules are the rules. It is a New Zealand company and we disclosed that, and so in a sense, it's old news."
Ardern pointed out that there are legal protections in place to try and prevent foreign interference in New Zealand elections through large monetary donations.
"That includes limits on the size of individual donations...This example that's been seen is outside the spirit of what the law intends to achieve."
Political party donations of more than $15,000 are currently required to be declared under the Electoral Act. The threshold for anonymous donations to candidates is lower at $1500.
Green Party Electoral spokesperson Golriz Ghahraman has described the revelation as "deeply alarming" and said it highlights why New Zealand needs stronger and more transparent political donation laws.
Ghahraman is calling for a cap on individual donations to $35,000. She also wants to ban overseas donations, and reduce the anonymity threshold to $1000.
"I will be putting those changes to political donations in Aotearoa via an SOP to the Government's Electoral Amendment Bill currently before the House," she said.
Ardern said there is "something to look at here".
She said that's why Justice Minister Andrew Little asked the Justice Select Committee to look directly at the issue of foreign interference in New Zealand elections.
Little said in October there was "natural concern" around the levels of transparency of how political parties are funded, and whether New Zealand's laws are transparent enough.
"We're still waiting for them to come back and that will give us a starting point to see whether the law needs to change," Ardern said of the select committee.
Last year, Jami-Lee Ross accused his then-leader, Simon Bridges, of trying to disguise a $100,000 donation from Chinese businessman Zhang Yikun, by splitting it up into smaller amounts, to be hidden from the Electoral Commission.
The now-independent Botany MP released a recorded phone conversation between him and Bridges, where the former National MP could be heard asking his then-leader what to do with the $100,000 donation.
In April, Ross brought more allegations against Bridges, by implying he was involved in the Chinese community's attempts to have a Chinese minister appointed.
Bridges defended himself at the time, saying: "I've got nothing that concerns me about any of this... I don't think National MPs have anything to worry about. We have nothing to hide."
The National Party received the most political party donations in 2018.