A notice on its website states the Little Boys Sleep Twosie Dino design does not have the correct fire hazard labelling and breaches the requirements of the mandatory safety standard for children's nightwear.
Product Safety New Zealand also issued a notice on Monday warning there is a risk of serious burn injuries if the arm with the raised edge is exposed to a heat or flame source.
Customers should "immediately cease using the product and return it to your nearest Kmart store for a full refund".
The same boys' dinosaur two piece sleepwear set was recalled by Product Safety Australia in March.
The clothing is sold in sizes 2 to 8.