Opposition parties are urging the Prime Minister to designate the Iran's Islamic Revolutionary Guard Corps (IRGC) a terror entity.
There have been weeks of anti-regime protests in Iran following the death of 22-year-old Mahsa Amini, who died in custody after being arrested for violating the country's dress code.
The IRGC, a powerful military force tasked with defending Iran's Islamic system, has been violently cracking down on protesters.
The National Party, the Greens, ACT and Te Pāti Māori have written to Jacinda Ardern, asking her to make the designation in response.
Ardern has the power under the Terror Suppression Act to decide which groups or individuals should be classified as a terrorist or terrorist organisation.
Designated entities have their assets frozen and it becomes a criminal offence to participate in or support its activities.
The letter to Ardern said the designation would "protect the security interests of New Zealand" and "make clear our firm stance against the violence suffered by the Iranian people, and all victims of terror committed by that organisation."
The IRGC is a designated terror entity in countries like the United States, Canada and Israel.
The letter said the designation had afforded those countries tools to protect their communities.
"Named, senior members of the IRGC have been barred from travel, funding or dealing in funds held by those persons, or entities controlled by them, has been criminalised.
"Valid concern remains that New Zealand is now an outlier and may become a sanctuary for IRGC funds or activity," the letter said.
National's Gerry Brownlee said the IRGC was a group with "considerable international reach."
"We need to ensure that they do not get any kind of a foothold here in New Zealand, especially if some of their members decided to try and use us as a safe haven," he said.
New Zealand imposed UN Security Council sanctions against some IRGC linked individuals in 2016.
The government has sought advice on what further action it could take, including if it could impose penalties using the Russia Sanctions Act.
Green MP Golriz Ghahraman said designating the IRGC as a terror entity could be an easier option.
"The prime minister does have some leeway pursuant to our terrorism legislation, to say actually, this is a threat to New Zealand security, this is a threat to global and regional security, which all of our security partners also have found."
New Zealand was falling behind in its response to Iran, Ghahraman said.
"We've always done well when we've stood up as a principled voice on the international stage and led the way on these issues. So we want our government to do that again."
A spokesperson for Ardern said five countries had designated the IRGC a terrorist entity.
"The majority of the international community are looking at other measures to put pressure on the Iranian regime to stop the violence against their own population.
"We are seeking further advice on additional actions the government can take. New Zealand is actively supporting efforts to have Iran removed from the UN Commission on the Status of Women."
New Zealand condemns the Iranian regime and IRGC's "brutal suppression of democracy and women's rights protesters", the spokesperson said.