Foreign Affairs Minister Murray McCully says the delivery of aid will be improved by sweeping changes to the present structure.
The semi-autonomous body NZ Aid will be brought back under the control of the Foreign Affairs and Trade Ministry and its focus will change from poverty elimination to sustainable economic growth.
Aid will be aligned with New Zealand's foreign-policy interests.
Mr McCully says 8% of the country's aid budget is spent on overheads and even more on other bureaucratic costs. More of the aid budget will be directed toward the Pacific, he says, and there will be a stronger focus on supporting enterprise.
He says trade and tourism statistics will be used to measure the success of the changes.
No change to the way aid is channelled to Fiji are planned, even though it has now been suspended from the Pacific Island Forum.
Mr McCully says that since the 2006 coup aid has been fed through NGOs in Fiji to keep it away from government programmes, and that will continue.
Worst possible scenario, says Labour
The Labour Party says the changes to aid delivery represent the worst possible scenario.
Aassociate foreign affairs spokesperson Phil Twyford says Mr McCully wants to spend more aid money on supporting private businesses in the Pacific.
Oxfam New Zealand warns that the changes could lead to the aid budget being used for political purposes.
Oxfam executive director Barry Coates says NZ Aid was made semi-autonomous so that it had a clear mandate unmuddied by other objectives.
The Christian aid and development agency Tear Fund says there was no consultation with non-governmental organisations before the changes were made, and that has left a bad taste in the mouth of many.