Otago University was the 155th ranked university in the annual QS World University Rankings, maintaining its place as the second-ranked New Zealand institution behind the University of Auckland, which came 94th.
However, both institutions fell compared with last year, when Otago came 133rd and Auckland 83rd.
The drop continues a trend, with all New Zealand universities, except for AUT and Lincoln University, falling in the rankings since 2007.
TEU vice-president Sandra Grey said Government cuts to tertiary education funding had made it difficult for New Zealand universities to compete.
''With more universities, and particularly more East Asian universities, spending large amounts of money to increase their research, quality and reputation, it is no easy task for New Zealand universities to hold their place.
She noted a significant criteria QS used to rank universities was staff to student ratio, which in New Zealand had risen from 17.5 students per academic in 2007 to 19 students per academic in 2012.
Tertiary Education Minister Steven Joyce said the drop in rankings reflected an ''increased competitiveness'' in the global university market This year's rankings were ''mixed news'' for New Zealand institutions, Mr Joyce said.
''On the plus side, it is the first time that all eight New Zealand universities are ranked in the top 500 in the world. On the other hand, some universities have had their scores improve but their rankings decline.''
The Government had increased investment in universities by 16.5% over the past four years, despite ''tough economic times'', he said.
''Therefore, as a country, we are not likely to be able to afford big increases in resources, so the challenge for New Zealand universities from these figures is to respond more quickly and effectively to the competitive challenges they face.''
Otago University had not responded to a request for comment by yesterday evening.
