Up to 10 NZDF personnel will head to the Middle East initially to discuss New Zealand's role, Defence Minister Gerry Brownlee said. Three had left yesterday.
Mr Brownlee would not say what countries they will visit, citing security reasons, but a spokesman said New Zealand had partners with bases all around the region.
The advance team will report back before decisions are taken by Cabinet.
A further $1 million in humanitarian aid will be provided to help those who have fled their homes in Syria and Iraq - in addition to the $13.5 million given since 2011.
Mr Key said New Zealand would step up its intelligence operations to further understand and potentially disrupt Isis.
In what is Mr Key's first major speech on national security he also outlined the advice he has been given on the threat to domestic security in New Zealand and set out how he wants the law changed to help address the threats.
On the watch list
Government agencies had a watch list of between 30 and 40 people of concern in the "foreign fighter'' context, he said.
"These are people in or from New Zealand who are in various ways participating in extremist behaviour."
In addition to those on the watch list, another 30 or 40 were on a list of people requiring further investigation.
He said five New Zealand citizens or residents were known to be fighting in Syria but the number fighting in the region could be larger because dual citizens or New Zealanders could have left from other countries.
Others were Isis supporters who had tried to travel to Iraq and Syria to fight and who had had their passports cancelled.
Mr Key also announced a funding boost of $7 million for Security Intelligence Service across the current and next financial year to increase the number of staff to monitor and investigate foreign fighters.
He set out plans to change the law to give SIS greater powers of surveillance including video surveillance on private property, with a warrant, which the police but the SIS cannot do.
He also want the SIS to have the ability to conduct surveillance without a warrant for 48 hours in situations deemed urgent. It can take at least 48 hours to prepare paperwork for a warrant.
Game changer
Mr Key said in such cases, if the warrant was not granted, any material collected would be destroyed.
New legislation would also give the Minister of Internal Affairs power to cancel passports for up to three years, and temporarily suspend passports for up to 10 working days in urgent cases.
Mr Key described the changes as "responsible and narrow" and said they would be subject to a sunset clause.
He said the rise of such a well-resourced, globally-focused terrorist group which was highly skilled in social media recruitment was a "game changer" for this country. "ISIL exposes us to a type of threat that we lack both the legislative tools and resources to combat."
He was limited in what information he could reveal, but said there were individuals here who were attracted to carrying out similar attacks to those seen in Australia and Canada.
Mr Key said he wanted to stress that none of the people causing concern in New Zealand were representative of the Muslim community as a whole.
"The Muslim community is a peaceful one, which makes a valuable contribution to New Zealand.
"I know the vast majority of Muslim New Zealanders are as distressed by the actions of ISIL and its violent extremist message as anyone else."
Parliament this afternoon debated Mr Key's speech and proposed law changes.
Acting Labour leader Annette King said Labour broadly supported the law changes and said they "appear to be justified".
She warned that the 48-hour pre-warrant surveillance power by the SIS should not become the norm, however.
The law changes will have a sunset clause, pending a major review of intelligence agencies and their powers in the middle of next year.
She welcome the fact that the bill, once introduced, would be going to a select committee where, she said, the law would be closely examined to see if it was workable, necessary and framed appropriately.
'Surprising' revelations
Dr Zain Ali, head of Islamic Research at the University of Auckland, said the Prime Minister's revelation that there were about 80 Kiwis linked to the Islamic State as "surprising" and called on the Government to give more information on who they are.
"You have to keep in mind that the Muslim community here is 50,000-strong, and this would represent a very low percentage even if we assume that all 80 people are Muslims," Dr Ali said.
"The interesting question is 'who are these people', are they in fact all from the Muslim community or do they include people from all over the place?"
Dr Ali said the small number goes to show that an overwhelming majority, or 99.8 per cent, of Muslims here are in fact "peaceful people".
"The threat level has been raised and there is a degree of suspicion, but I think the media has played a very good role in the current context where it has consistently allowed the Muslim community to have a voice," he said.
"And the representatives of the community have been able to say consistently 'look, we are not associated with this ideology'."
Javed Khan, Federation of Islamic Association vice president, said the federation was concerned over the number of New Zealanders associated with the extremist group.
"We are concerned at the number of the people who are under surveillance and we are concerned that there are so many people who have connection with terrorism," Mr Khan said.
"To the general public, any Muslim will be seen as a person who may have link with terrorism and that is not good for the community at large."
Mr Khan said the federation had been aware of "a few" who were supporters of the ISIS cause, but was surprised that there was about 80.
"The federation's position is very clear, we do not support the Islamic State, they are a terrorist organisation which has no ethics and we condemn their actions," said Mr Khan.
"We do not support that organisation or anyone who supports them, without any reservations we condemn them."
Key acted too slowly - Peters
New Zealand First leader Winston Peters said his party agreed that the threat of ISIS was very significant and there was no room for complacency.
He said ISIS was a "deeply disturbing development" that had "unleashed a form of barbarism" that no country could ignore.
But Mr Peters felt that Mr Key had acted too slowly, and had failed to be transparent in deciding Government's response.
He said the Herald appeared to have been better briefed than MPs, pointing to an article which outlined the creation of a new national security advisory group.
New Zealand First supported some of the measures outlined by Mr Key, in particular efforts to provide diplomatic, humanitarian, and intelligence support to combat ISIS.
Mr Peters said changes to surveillance appeared to be an upgrade of technology rather than an expansion of existing powers.
But his party would not be "rubber-stamping" any legislation unless it had been convinced that it was in the interests of national security.
- additional reporting Isaac Davison
