Web mogul Kim Dotcom engaged in a verbal sparring match with New Zealand's prime minister during a parliamentary hearing to discuss potential surveillance laws changes.

Dotcom, who founded file sharing website Megaupload and is currently under investigation for copyright infringement and money laundering, was the main focus for day two of the intelligence and security committee hearings in Wellington, led by the prime minister, John Key, the Guardian reported on Wednesday.

Dotcom deemed the new proposal of expanding spy capacity "poorly timed, considering the scandalous leaks concerning U.S. mass surveillance of the world's population, including U.S. allies." He then pushed for the committee to reinstate a "heroic stance" the country took in the 1980s when it was nuclear-free.

"When a great power such as the United States is committing immoral and illegal practices, ranging from Guantanamo to torture to drone strikes, let alone mass surveillance against the entire world population, there has never been a greater need for New Zealanders to, once again, step forward and declare their values shall not be abandoned or suspended under pressure from the United States," German-born Dotcom said.

Dotcom went on to say that he possessed pieces of evidence contradicting Key's constant public insistence that he had no idea of Dotcom's actions before January 2012's enormous raid on the "Dotcom mansion," located in northern Auckland.

"Oh, he knew about me before the raid. I know about that," Dotcom said in court, throwing a disdainful eye in Key's direction. "You know I know."

Key fired back: "I know you don't know. I know you don't know."

"Why are you turning red, prime minister?" Dotcom said quickly.

"I'm not. Why are you sweating?"

"It's hot. I have a scarf."

After the committee hearing, Key told the press that Dotcom is "a well-known conspiracy theorist...he's utterly wrong."

The proposed bill aims to alter the transfer of the Government Communications Services Bureau, and was first submitted in response to the insistence that surveillance on Dotcom and a coworker at Megaupload was illegal. As residents of New Zealand, the agency was not allowed to spy on them. Key apologized publicly to the men.

The new bill would legalize the GCSB's spying on permanent residents.