A listening device has been discovered in a meeting room at hotel in Sydney where the All Blacks are staying.
The team are in Sydney for their first test in the Rugby Championship against Australia tonight.
New Zealand Rugby has confirmed that an investigation has been under way since the device was found earlier this week during a routine security check.
Chief executive Steve Tew said the Australian Rugby Union was notified and both unions agreed to hand the investigation over to the police.
Mr Tew said the hotel was also investigating and the issue is being taken very seriously.
The New Zealand Herald is reporting a chair seat appeared to have been carefully cut to make way for the device and then sewn or glued back together so it was almost undetectable.
Sydney police were investigating why it took days for the New Zealand Rugby Union to come forward about the bugging.
Superintendent Brad Hodder said he would be looking at the reasons for the delay, which made the investigation tougher.