KiwiRail has halted 40 of its newest freight locomotives while urgent tests for asbestos are done.
The Chinese manufacturer of the engines has confirmed the soundproofing compound used in them contains a small amount of asbestos.
When KiwiRail found out about the asbestos on Thursday, it arranged testing and told affected staff.
The company says the locomotives, all in the North Island, won't run until the test results, due back early next week, have confirmed they are safe.
Until then, KiwiRail says there will be some disruption to freight services.
KiwiRail says analysis of a single engine shows asbestos is present but it does not constitute a risk to health.
Chief executive Peter Reidy says every train needs to be thoroughly tested before they can be considered ready to go back into service.
He says about 15 tests have been done so far and an early diagnosis from the experts is that the asbestos is contained within a solid resin and that it poses a lower grade risk because it's not airborne or exposed.
The Rail and Maritime Transport Union says Australia found asbestos in its DL locomotives last year, which were sourced from the same Chinese company as New Zealand's.
General secretary Wayne Butson says the union asked KiwiRail to assess its locomotives and the company assured it they had been checked by experts and were asbestos free.
He says the union is now uncertain about the level of trust and confidence it can have in KiwiRail and it's very concerned about the health of workers who may have been exposed.
Labour Party transport spokesperson Darien Fenton says the incident is the latest in a long line of failures in the overseas procurement of locomotives and wagons.
She says lowest cost tendering, cuts to rail maintenance and contracting-out has led to a catalogue of problems for the company.
Ms Fenton says the Government is putting pressure on KiwiRail to cut costs and make a profit, and the company is starved of assets and resources.