New Zealand was acting independently when it called out China for using "disinformation", Prime Minister Jacinda Ardern says.
The statement prompted China's Foreign Ministry to query what the incident had to do with New Zealand.
A spokesperson for the ministry, Hua Chunying, suggested that by weighing in, New Zealand was showing it supported Australia's actions in Afghanistan, as detailed in a damning report.
"Frankly, I was very surprised when I read it in the news. Does this matter have anything to do with New Zealand? Can it be that New Zealand agrees with or even supports Australia's deeds?" she said.
China also criticised the Australian government for attempting to "stoke domestic nationalism" by demanding an apology for the image.
Jacinda Ardern said this country had valid concerns and was not taking sides.
"If we saw a visual representation published by Australia that was incorrect, that was a doctored imagine for instance, we would raise that concern also.
"For us, it was a matter of principle - we've raised that concern," Ardern said.
Ardern said she does not believe there would be any economic retaliation from China.
Trade Minister Damien O'Connor was also unconcerned about the escalating row will harm New Zealand's trade relationship with China.
He described the relationship between the two countries as "healthy" and "mature".
"There's been a lot of rhetoric around, we don't engage in that at all, we don't support it," he said.
"We'll just continue with what is a solid, sensible relationship with all of our international partners."