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Mr Key, speaking to Radio New Zealand this morning, said he didn't understand what former GCSB director Bruce Ferguson meant by the term.
"I don't even know what he mans by that, so there's no point in asking me the question. I can't tell you what's in Bruce Ferguson's head and what he means by that.
"The law is very clear about what it allows us to do when it comes to New Zealanders, and all the advice I've had is that we are 100 percent compliant."
Mr Key said he did not agree that New Zealanders had a right to know whether their emails, text messages and personal data was being gathered by a state intelligence agency.
"Well, as a general rule the answer to that should be no […] but it depends on the circumstances," he said.
Mr Key told Radio New Zealand the law did not allow spying on New Zealanders, except in special conditions, and the advice he's received is that those legal requirements were being met.
"Where we go and collect information there's always a very good reason for that," he said.
Asked again to confirm whether there was mass collection of New Zealanders' data, Mr Key said: "I'm not going to agree with that, I'm not agreeing or disagreeing".
"I don't even have a clue what you mean by that."
Kim Dotcom told Radio New Zealand that he found Key's response to the spying claims "incredible" and "chilling".
He said one million New Zealanders visited the Pacific Islands each year, and their private data was being collected by the GCSB and handed over to the NSA.
"That is the definition of mass surveillance," he said.
Dotcom said he believed the mass surveillance operation was going on in New Zealand as well.
He called for Mr Key to resign in light of the spying revelations.
"The evidence couldn't be clearer, and John Key should therefore resign as Prime Minister."