The officer pursued the driver to speeds of 95 km/h on the wrong side of the road, and following closely.
After about a kilometre the stolen car hit a roundabout, lost control and hit a street light, knocking it to the ground.
The car then hit a tree on the median strip then spun twice into the two left-hand lanes before coming to a stop back on the correct side of the road.
The driver of the stolen car suffered minor injuries and the passenger was taken to hospital with a ruptured spleen.
IPCA chairman Judge Sir David Carruthers said although police complied with the law and policy in commencing, and communicating during the pursuit, the officer driving the patrol car did not give enough weight to the increased risk created by a pursuit at almost double the speed limit, on the wrong side of the road, and at a close distance of only two-to-three car lengths.
"The authority believes that the pursuit may have placed the fleeing driver under further pressure, leading him to take greater risks with his driving," Sir David said.
As a result of this incident, the driver was charged with driving with excess breath alcohol causing injury, reckless driving causing injury and aggravated robbery. He was convicted and sentenced to four years and six months imprisonment.
The female passenger was convicted of aggravated robbery and was sentenced to three years imprisonment.
As a result of this incident the officer has undergone further training.
Police said they accepted the findings.
The acting District Commander for Bay of Plenty Police, Detective Inspector Tim Anderson, said fleeing drivers were always a challenge for police.
"They are unpredictable, fast-paced situations with officers having to make equally fast-paced judgements and decisions, all the while balancing the risks posed by pursuits with the need to protect the public from the offenders."
Mr Anderson said police had no intention of handing over the roads to people who thought they were above the law.
"However, we are also committed to maintaining high levels of safety and will continue to identify opportunities to improve and enhance our training and the way in which we respond to these situations."
Mr Anderson said he welcomed the IPCA's decision as it identified lessons that can help to improve police practice, policy and procedure.
"We always welcome independent scrutiny into these situations as it is an important part of ensuring transparency and accountability."
