IPCA chairman Judge Sir David Carruthers said the police response was "in many respects exactly as it should have been".
"The officer who shot Mr Kelly-Tumarae intended to incapacitate an armed offender and so remove a threat to his own life," he said.
"Having decided to use his pistol, he continued to fire until he perceived that the immediate threat to his life had passed. In those circumstances the force used was justified."
Mr Kelly-Tumarae had left his grandmother's home in Flaxmere, early on March 28, with his late grandfather's shotgun. He had both alcohol and cannabis in his system from the night before.
The teenager was spotted by a routine patrol crouching beside a car, and when they stopped, he approached and pointed the weapon at them.
The officers sped off and reported the incident to their communications centre.
An 18km pursuit through suburban Napier began after Mr Kelly-Tumarae drove away in his grandmother's car and ended up outside the main entrance to the Omahu Marae Cemetery, west of Hastings, where his grandfather was buried.
The teen got out of the car with the shotgun and pointed it at an officer parked close by. A policeman in a second vehicle got out of his patrol car and aimed his Glock pistol at Mr Kelly-Tumarae, shouting "armed police".
The 19-year-old ran towards the cemetery, then stopped and turned around, aiming his gun at the armed officer.
"Fearing that Mr Kelly-Tumarae was going to shoot him, the officer discharged a volley of shots. Mr Kelly-Tumarae remained standing, and believing he had missed, the officer fired another volley of shots," the report says.
A total of 14 bullets were fired from the police officer's weapon, with four wounding the teen. Another bullet appeared to have passed through his clothing, the report said.
The IPCA said this explained the large number of holes in Mr Kelly-Tumarae's clothing - a total of 13 were found - which the family have questioned.
Sir David acknowledged there was "room for improvement" in how the police had communicated with the teenager's family following the shooting and during the investigation; in particular, the failure to explain the bullet-ridden clothes when they were returned to the family nine months after the shooting.
However, he said it was Mr Kelly-Tumarae "who initiated this incident" and police had "no option" but to follow him.
"Responding to armed offenders is one of the unavoidable hazards of police work. The officers who were called on to respond to Mr Kelly-Tumarae were willing to put their lives in danger in order to carry out their duty," he said.
The authority made a number of recommendations, including amendments to policy around the use of carrying guns.
An investigation last year found the officer who shot Mr Kelly-Tumarae was not criminally liable for his death.