The New Zealand government has begun urgent talks with Australia over Queensland's "discriminatory" trade move.
From tomorrow, the Queensland state government will favour local bidders for public contracts by up to 30 percent against outside bidders.
It has confirmed New Zealand businesses will be impacted by the move, with Trade Minister Todd McClay last month labelling the policy "a bit crazy".
Mr McClay said the new talks with the federal government would aim to stop the state from undermining free and fair trade between the two countries.
He said that by initiating Closer Economic Relations (CER) talks and lodging a formal objection with the federal government in Canberra today, New Zealand was showing it would not simply stand by.
"This is the first time that a premier of a state has singled out New Zealand companies and said she wants to discriminate against them.
"CER demands that New Zealand companies are treated the same in Australia ... the New Zealand government demands the Australian companies are treated fairly and the same."
Mr McClay said retaliating in kind would be harmful to all parties and New Zealand had not raised that as an option with Queensland.
The move follows a fortnight of failed talks between the New Zealand Consulate-General and Queensland.
Mr McClay said Queensland companies provided millions of dollars of goods and services to the government here, and New Zealand businesses must be shown the same courtesy in Australia.
In a letter to the Queensland government, Economic Development Minister Simon Bridges said the policy was "inconsistent" with a procurement agreement made under CER that provided a level playing field for businesses to bid for any government work in either country.
Mr Bridges said the state government was aware that Queensland companies like Suncorp and Flight Centre had won goverment contracts in New Zealand in recent years.