The officer managed to drive away and called for assistance.
Frontline officers, including dog handlers, tried to disarm Stephens, but he lunged at them with the slasher before running down a driveway.
Stephens turned and threatened them before attacking a police dog van.
One officer fired his Taser twice at Stephens without effect and another used pepper spray in a last-ditch attempt to stop him.
The chase led to a busy shopping centre where, at lunchtime during school holidays, a number of people stood in the carpark and watched events unfold.
As Stephens crossed the northbound lanes of Te Ngae Rd, he threatened a driver with the slasher before turning to confront the armed officer.
"Stephens started walking towards the officer and, despite being challenged to drop his weapon, he raised the slasher into a striking position," the report said.
"The officer believed that he couldn't retreat quickly enough to avoid being struck down, but he also determined that he couldn't leave the public unprotected."
The officer shot Stephens twice from about 5m.
Stephens died 12 days later in hospital from his gunshot wounds.
Authority chair Judge Sir David Carruthers said: "This incident was fast-paced, and took place in a busy urban environment. Many workers and bystanders were exposed to the threat posed by Mr Stephens, who behaved irrationally and with extreme aggression."
Judge Carruthers noted that repeated attempts to stop Stephens were unsuccessful.
"The officer who shot Mr Stephens was justified in doing so not only to protect himself, but also to protect the public," he added.