Prime Minister Jacinda Ardern has publicly reprimanded Cabinet Minister Shane Jones, labelling his language around Indian immigrants "loose" and "wrong".
The New Zealand First MP said Indian students had ruined academic institutions and there were too many immigrants coming "from New Delhi".
At her weekly press conference Ardern said she hadn't had a chance to speak to Jones yet, but that when she did she would be relaying her displeasure.
But National said that was not good enough and wanted more action.
Over the weekend, Jones told the Newshub Nation he wanted a "maximum population", and New Zealand needed to think about the kind of country we wanted.
"If you want another million, two million, three million people, we should debate it and there should be a mandate, rather than opening up the options, unfettered, and everyone comes here from New Delhi.
"I don't like that idea at all. I think the number of students that have come from India have ruined many of those institutions," he told Newshub Nation.
Ardern said Jones was not in the Cabinet meeting today, but she planned to have a strong word with him.
"On many occasions I've witnessed Minister Jones be both loose with his language and also be wrong, and on this occasion he was both," she said.
This follows Jones saying last year that if the Indian community was unhappy with policy around partnership visas for arranged marriages they could "get on the first plane home".
Waitakere Indian Association President Sunil Kaushal said Jones' comments were racist and Ardern needed to ensure this sentiment didn't keep being repeated.
"This is a three-strikes-out kind of a thing, you know, she needs to really have a chat with her Cabinet and the leader of Shane Jones' party that his behaviour is unacceptable in a multi-cultural, multi-ethnic, diversity inclusive New Zealand. This is not who we are," he said.
Kaushal said the Indian community contributes so much to New Zealand's economy and society and these comments are unwise.
"We have doctors, lawyers, solicitors, you know, in very high professional areas and making these comments about the Indian population again is very immature and it's not the right thing to do," he said.
This is not the first time Ardern has had to give Jones a slap on the wrist, and while the language is tougher - the realities of coalition government remain.
"I absolutely disagree with the statements that he's made, but I also have to acknowledge that he is not a member of my party, so it's going to be obviously the case that from time to time we will disagree, that is why we are in different political parties," Ardern said.
Jones' outburst came as Trade Minister David Parker and Foreign Minister Winston Peters - Jones' boss - were in India discussing ways to strengthen ties.
This morning Parker dodged questions from Morning Report's Susie Fergusson about whether Jones' comments were unhelpful.
"I'd make the point that when you're having a debate about population you've got to be careful about language," he said.
Parker refused to say whether the comments were racist or dog-whistle politics.
"I actually get on with Shane Jones well and when I think he's gone too far I tell him privately," he said.
However, he would not say if this was such an occasion.
Ardern said while she had been advised the comments did not have any impact on the trip or New Zealand's relationship with India, it went beyond that, because it affected our local community.
"I take that very seriously, which is why I'm very, very clear I totally disagree with Shane Jones, I will be telling him that, and I will also be asking him to reconsider the way he talks about these issues in the future because I do not believe it is good for New Zealand," Ardern said.
National leader Simon Bridges said Ardern needed to do more than that.
"He singled out a nationality for criticism said they shouldn't be coming here and then of course it's not good enough from the Prime Minister.
"She's effectively 'tut-tuting' but doing nothing on the basis that this is someone in another party...he is also a senior minister of her's.
"She, under the Cabinet manual, has responsibilities in relation to him and she should not only be raising these things but reprimanding him," Bridges said.