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The gunmen attacked an army-run school in Pakistan's northwestern Peshawar city, killing children and teachers, about 10.30am local time yesterday.
Speaking to reporters after a function in Queenstown early this afternoon, Mr Key said he offered condolences to the people of Pakistan on behalf of all New Zealanders.
"Like everybody, we're horrified by what we have seen take place in Pakistan overnight.
"Children go to school to be safe and to be educated, and what's taken place there is of proportions that none of us could comprehend.
"We utterly condemn the actions that have taken place."
The Pakistan Association of New Zealand also condemned the attack, which president Athar Awan called "inhumane".
He described the perpetrators as "animals".
"They have nothing to do with Islam or humanity, because this is inhumane.
"How are they claiming that they are Muslim and that they are fighting for Islam... they are not Muslim... they are animals."
He said there had been many messages of support and solidarity sent to him and the association sharing that sentiment.
"Everyone is condemning this."
A Pakistani-New Zealander said she hadn't brought herself to find out whether any of the people killed in a massacre at a school were friends or relatives.
Mahvash Ali said the news of the attack by the Taliban had her "reeling", but support from friends and colleagues had boosted her spirits.
Today she was wearing her country's national dress, the shalwar-qameez, to show her support for the nation's mourning.
She has a daughter the same age as many of children killed in the attack, which made it more difficult to see the events unfold.
"In their faces I'm seeing my little girl.
Mrs Ali wears a headscarf, which makes her more noticeable in the community, she said.
She said people understood that "most normal Muslims are not the Taliban."
"People have been ... sympathetic, and very caring and very understanding," she said.
"The sweetest thing that happened was my boss came up to me and said 'you don't have to work today, you can go home,' which means a lot."
The attack began when a group of at least five insurgents, reportedly in military uniforms, entered the school.
Witnesses described how a huge blast shook the school in the northwestern city of Peshawar and gunmen went from classroom to classroom, shooting children.
The Tehreek-e-Taleban Pakistan (TTP) claimed responsibility for the attack as retaliation for a major military offensive in the region, saying militants had been ordered to shoot older students.
Prime Minister Nawaz Sharif described the attack as a "national tragedy unleashed by savages".
"These were my children. This is my loss. This is the nation's loss," he said.
A source told NBC: "They burnt a teacher in front of the students in a classroom. They literally set the teacher on fire with gasoline and made the kids watch."
One suicide bomber is believed to have blown himself up in a room full of 60 children.
The massacre at the school was the deadliest terrorist attack in the country's history.
By Sophie Ryan of NZME. News Service and Guy Williams of the Otago Daily Times