New Zealand's intelligence agency on Thursday warned the country faces its toughest security challenges in decades, citing growing foreign interference and espionage, with China singled out as the "most active" actor.

The Security Intelligence Service (SIS) said in its annual threat report that New Zealand has been targeted by countries including China, Russia and Iran, which "are willing to engage in covert or deceptive activity to influence discussions and decisions, or gain access to technology and information that can help them meet these goals."

Beijing rejected the findings as "unsubstantiated and groundless," accusing Wellington of adopting a "Cold War mentality."

NZ announces increased defense spending

The report titled "New Zealand's Security Threat Environment" is released annually as a government initiative to inform citizens about the security risks the country faces.

It described China as a particularly "assertive and powerful" actor, with both the intent and capability to target New Zealand's interests in the Pacific.

The report also flagged a rising risk of lone-actor extremism, often fueled by online radicalization.

Director-General of Security Andrew Hampton said New Zealand's threat environment "is deteriorating and that has a direct impact on our safety and security."

New Zealand is part of the Five Eyes intelligence and security alliance — which also includes Australia, Canada, the United Kingdom and the United States — and is caught in the geopolitical struggles of the Indo-Pacific region.

On Thursday, Wellington announced it would spend NZ$2.7 billion ($1.6 billion, €1.38 billion) to bolster its defense force.

China refutes claims

The Chinese Embassy in Wellington said such accusations "poison" bilateral ties, even though Beijing regards New Zealand "as a friend and partner."

"The accusations sound very familiar as they rehash smears and slanders fabricated elsewhere, repackaged for the New Zealand audience," the embassy spokesperson said, adding that "the healthy and stable development of bilateral relations depends on the joint efforts from both sides."

Edited: Louis Oelofse