Speaking in Dunedin today, Mr Peters told about 260 people New Zealand had been caught out and exposed to being a pawn of the Communists in China.
"The influence of the Government of China is real within the New Zealand Government. This is not a spy thriller from the airport bookshelves,'' he said to loud applause.
New Zealand became vulnerable the moment National recruited Dr Yang, Mr Peters said.
His decade of work with Chinese military intelligence had only now been opened up, but not yet laid bare.
A joint investigation by Newsroom and Hong Kong's Financial Times claimed New Zealand's Security agencies had investigated the Chinese-born MP, who studied at government-connected institutes, including China's top linguistics academy for spies, before he moved to New Zealand.
Mr Peters said Dr Yang had tried to quell the outrage by saying he had been transparent.
However, his CV had 10 years missing which was the time he spent with the Chinese intelligence, and not as an English teacher.
''Was he the only English teacher they could find?''
Dr Yang's hands were all over New Zealand's contact with foreign policy decision-making.
He sat on the influential Parliamentary Foreign Affairs, Defence and Trade select committee.
That made his background working with China's military intelligence for a decade seriously significant.
Mr Peters claimed a Chinese informant, someone he trusted, alerted him to Dr Yang's past in 2011 but could not provide the evidence.
He released copies of Hansard to prove he had raised the matters on April 5 which Prime Minister Bill English dismissed.
The audience was supportive of Mr Peters' call for an immediate inquiry.
