Shanks (26) caught former international rower Jamie Neilson (Waikato-Bay of Plenty) in the final 100m and won the 3km individual pursuit in 3min 30.543sec.
Neilson was timed at 3min 39sec.
It was her fastest time for the event and beat the 3min 30.685sec she recorded when winning the Beijing World Cup in January.
Shanks broke her New Zealand record in the qualifying heat with a time of 3min 31.265sec and then beat it again in the final last night.
"I'm happy with that," Shanks said from Invercargill last night.
"It is a great place to be at this stage going into the world championships."
Shanks was pleased with her race in the final.
"It was a more even race than the heat and I enjoyed the hot temperatures inside the velodrome."
The result pleased her coach, Craig Palmer. "It was a great lead-up for the world championships in Poland later in the month," he said.
It was 28degC in the velodrome last night and Shanks was one of the few riders to get a faster time than in the morning heats.
Palmer is predicting a podium finish for Shanks at the world championships in Poland. Shanks will continue training in Invercargill until she leaves for the world championships on March 16.
Olympic gold medallist Sarah Ulmer was trackside, watching the event in which she still holds the world record of 3min 24.537sec set at the Athens Olympics in 2004.
Ulmer has the fastest time by a New Zealander, but New Zealand records must be set in New Zealand.
Jesse Sergent (Palmerston North) smashed the New Zealand men's 4km individual pursuit record in his heat.
Sergent, who won gold at the recent World Cup meet in Beijing, set a new mark of 4min 16.714 sec.
It beat the record of Olympic silver medallist Hayden Roulston of 4min 21.281sec set at last year's championships.
Sergent's time was the second-fastest in the world this year. He was slower in the final with his time of 4min 23sec.
He beat Westley Gough (East Coast North Island) by 4sec.
Former rowing Olympian Sonia Waddell made her nationals debut in the heats and finished sixth-fastest in the 3km pursuit with a time of 3min 47.695sec It has been a successful championship for Otago with five cyclists standing on the podium.
After three days, Otago cyclists have won seven medals - three gold, two silver and two bronze. The most successful of the younger cyclists has been Taieri College pupil Alysha Keith (15) who has won a gold and two silver medals in the under-17 grade.
The Bob Jones-coached cyclist won her gold medal in the 2km individual pursuit in a time of 2min 40.496sec.
Her medals came in the 500m time trial and the under-17 points race.
Amy Pearce won the bronze medal in the points race.
Charlotte Kelly won a bronze medal in the under-19 women's 200m sprint when she beat Cara Smith (Canterbury).
The evergreen Mark Spessot won a gold medal in the masters points race.
