In a column for Investigate Magazine, the Waimakariri list MP suggested young Muslims shouldn't be allowed to travel on Western airlines because 'most terrorists are Muslims".
He accepted that most Muslims are not terrorists, but it's "equally undeniable" that "most terrorists are Muslims".
"If you are a young male, aged between say about 19 and about 35, and you're a Muslim, or you look like a Muslim, or you come from a Muslim country, then you are not welcome to travel on any of the West's airlines," he wrote.
New Zealand Muslim Association president Haider Lone said the "senseless" comments were racist and would tarnish New Zealand's good reputation abroad.
"New Zealand has a very beautiful and wonderful reputation around the world and we want to keep that, and these sort of people will damage that reputation."
He called on New Zealand First leader Winston Peters to take disciplinary action against Mr Prosser, who was swept into Parliament as a list MP on the strength of Mr Peters' political fortunes, despite not winning his electoral seat.
"I hope this is the first and last time this sort of person is allowed into parliament," Mr Lone said.
Hundreds of commentators have taken to social media expressing their outrage.
TV3 reporter Ali Ikram said: "It's cool peeps, don't like airports anyway."
NZ First Leader Winston Peters said there was "an element of truth' to what Mr Prosser wrote, but his MP had failed to balance his attack by acknowledging that the majority of Muslims were peaceful and law abiding.
"There is an element of truth to what he is saying ... this has been happening again and again ... there are far too many Moslem extremists", Mr Peters said.
Mr Prosser's comments reflected an "extreme view borne of extreme circumstances".
However, Mr Peters said: "You cannot have a view that puts everybody in the same boat when we know that there are Islamic governments abroad and millions and millions of Islamic people who are law abiding and peaceful and democratic. That's where the article dramatically failed.
"NZ First does not share that view, and you'll not be hearing it repeated again."
Curwen Rolinson, a member of NZ First's board of directors, moved to distance the party from Mr Prosser's comments.
"This is an MP expressing his own very personal opinion through the mouthpiece of an Investigate column. He is also prone to hyperbolistic feats of expression," he posted on Facebook.
Prime Minister John Key said Mr Prosser's comments were "an example of the depth of thinking coming out of New Zealand First".
"It's an appalling thing to say. It was premeditated. It was written in an opinion piece. It's clearly what New Zealand First think of other New Zealanders but it's a bit buffoonish if you ask me."
Labour Leader David Shearer said he found Mr Prosser's comments "offensive" and said they could hurt New Zealand's reputation in other countries.
"If those sorts of comments were made in the Middle East it could incite violence we don't want that here.
It makes us look like we don't care about people from the Middle East, from Moslem countries. People will be looking at us with some disdain."
The fact they were made in a printed column made it worse as they were clearly pre-meditated, he said.
Mana Party leader Hone Harawira said Mr Prosser's comments were racist, and without basis in fact.
"It's kinda like saying that no 19- to 35-year-old white guys should be allowed to go anywhere because they cause so many wars around the world.
Asked whether the NZ First MP should have kept his comments to himself, Mr Harawira said: "It's best that they're actually expressed openly because when people hold views as extreme as that, it's best that we hear them."
Act Party leader John Banks said the comments were "crazy" and "bizarre".
"What can you say? I believe in good in all people, all races, all people."
Asked whether there was a place for such extreme views in Parliament, Mr Banks said: "That is going to be tested by this member."
In his article, Mr Prosser also said: "I will not stand by while [his daughters'] rights and freedoms of other New Zealanders and Westerners, are denigrated by a sorry pack of misogynist troglodytes from Wogistan."
The 9/11 hijackers were Muslims, as were the London "tube bombers", Mr Prosser said, along with the Taleban and al-Qaida.
"There is a pattern here, I promise you," he wrote. "These are angry, young Muslim men who hate the West and want to destroy it.
"They attack us, and our institutions and infrastructures, and our way of life, and our values and beliefs and precepts, because we are not like them, and for no other reason."
Prosser, 45, has previously made no apology for the strength of the controversial ideas he has been pushing for almost 10 years.
In 2011, he called for the burqa to be banned, while he also wanted bank tellers, dairy owners and taxi drivers to be armed.