The new exemption will apply to all qualifying construction loans from October 1, 2013.
Spencer said the exemption would help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market.
See a Reserve Bank question and answer page on the topic here.
The bank introduced limits earlier this year because it saw high LVR lending as putting the financial system at risk.
Labour: Govt missed how it would affect new home builds
Labour's Housing spokesperson Phil Twyford said the Reserve Bank had "bowed to the inevitable'' by exempting new builds.
Twyford said The Master Builders' evidence that the lending limits were putting thousands of new builds at risk blew a hole in the Government's policy of trying to increase housing supply.
"The mystery in all of this is why the Government didn't properly think through LVRs in the first place,'' Twyford said.
"They didn't consider the effect on new builds, the fact it would lock first home buyers out of the market, nor that it would depress already stagnant house prices in many parts of regional New Zealand,'' Twyford said.
Bankers: We said supply was the issue, not cheap credit
The New Zealand Bankers' Association welcomed the Reserve Bank's move.
"We've said all along that supply has always been the issue in parts of the housing market, not the availability of cheap credit,'' the association's chief executive Kirk Hope said.
"We agree that this move will help to support the supply of new housing and reduce pressure on demand in the New Zealand housing market,'' Hope said.
Builders: 3000 homes had been placed at risk by the policy
Registered Master Builders Federation chief executive Warwick Quinn last month met Reserve Bank officials to update them on the findings of independent research into the impact of the policy on new home builds.
Quinn said the policy - which restricts the amount of lending banks can extend to buyers with deposits of less than 20 per cent - could affect as many as 3000 new home builds a year.
That figure was based on data showing that 15 per cent of the 20,000 new builds each year were for buyers with low deposits.
The research conducted by building research group Branz suggested the impact was likely to be wider, Quinn said.
It suggested potential buyers with deposits over 20 per cent were shying away from new builds because of the risk they would require a top-up loan during construction which would take them below the 20 per cent limit.
The research also indicated some people who would otherwise have large deposits were unable to commit to new builds because of difficulties in selling their existing homes due to the effect of the loan limits on would-be buyers.
In speech last month, Spencer said from 2000 to 2007 house prices more than doubled, and household debt increased from 100 to 150 per cent of disposable (after-tax) income.
ASB Bank economist Christina Leung said today's announcement would not have a material impact on the monetary policy outlook.
"We had expected any effects of the LVR restrictions on the construction of new homes would largely come through in the first half of 2014 given project lead times and consent processing time,'' Leung said in a commentary.
ASB expects the central bank to start raising its official cash rate, which sits at 2.50 per cent, from March next year.
