Mr Peters, who is well known for his opposition to current immigration levels, believes New Zealand's refugee quota should be increased by at least a third.
There is currently an annual limit of around 750 places for refugees on United Nations waiting lists.
"There's no reason, in my view, that we couldn't go to 1000 easily, and do it in a responsible way," Mr Peters said yesterday, in answer to a question from a first year politics class at Victoria University of Wellington.
Today, Dame Susan said raising the refugee quota would be "humanity in action".
"New Zealand hasn't raised our refugee quota since David Lange was Prime Minister, Mr Peters was his party's race relations spokesperson and I was the world squash champion - times have changed a lot since 1987, it's time to raise the quota," Dame Susan said.
"We have millions of displaced people in the world - most of them children. This is New Zealand's opportunity to lead by example as a Security Council member: We must play our part as a responsible, humane global citizen.
"For a country that's renowned for punching above our weight on the world stage: when it comes to taking in refugees we lag behind the rest of the world."
Mr Peters made his comments after strongly criticising levels of immigration that occurred under both Labour and National-led Governments.
He was asked by a student whether he differentiated between immigrants and refugees.
"Refugees are totally different to immigration, and I think there is just cause for saying we should revisit our UN commitment of 750," he said.
"But if you are going to run that alongside wholesale immigration, then I am really concerned...look after our own people first. Immigration is being massively abused in this country."
Prime Minister John Key has recently defended New Zealand's refugee quota, after Amnesty International lobbied for numbers to be doubled.
Mr Key said considerable efforts and resources ensured refugees were well settled and supported after arriving here, and that "intensive wrap-around service" was the focus, rather than numbers.
Family reunifications were also allowed, Mr Key said, which meant the quota was actually much greater than 750.
By Nicholas Jones of the New Zealand Herald
