He made the clearest statement yet on metadata - logs about communication such as emails and phone calls, as opposed to content.
''There have been claims this Bill offers no protection of metadata and allows for wholesale collection of metadata without a warrant,'' he said.
''None of that is true.''
Under the Bill, metadata was treated in the same way as the content of communication.
When the GCSB wanted to access metadata, it would be treated with the same level of seriousness and protection as if the GCSB was accessing the actual content of a communication.
After initially dismissing opposition to the Bill as politically motivated and misinformed, Mr Key has been more active in recent days in defending the legislation to try to settle concerns of New Zealanders.
In the end, the majority was two votes, not the one expected, because the Maori Party, which opposed the Bill, did not have enough MPs in the precinct to cast its three votes and cast two instead.
The vote was 61 votes in favour to 59 against.
Labour leader David Shearer said revelations by former US National Security Agency contractor Edward Snowden about spying had created global disquiet and the GCSB Bill had fuelled fear about the State's ability to pry.
He said New Zealand had lost an opportunity to be a world leader, ''charting a path through these dilemmas that would act as a model for other countries''.
''This is a sad day. We are here passing legislation that is ad hoc. It is Mickey Mouse. It will do nothing to reassure New Zealanders that their private lives are safe from the prying eyes of spies.''
Mr Key said he had rarely seen so much misinformation and conspiracy about a subject as had been perpetrated about the Bill.
''That has some citizens agitated and alarmed, which I regret. But my regret about that would be nothing compared with my regret if this measure was not passed.
''This Bill is being passed today because its provisions are needed today.''
Mr Key set out in his speech a two-step process he would use to grant interception warrants before the GCSB could see the content of New Zealanders' communications under the cyber security function, which would usually involve the consent of the person involved.
The assistance function of the GCSB would not entail wholesale spying.
An inquiry had identified that the GCSB, New Zealand's foreign intelligence agency, had helped other domestic agencies just 88 times in the past 10 years, or nine times a year. Such assistance will be unequivocally lawful in the future.
''So this isn't - and never will be - a wholesale spying on New Zealanders,'' he said.
''It isn't a revolution in the way New Zealand conducts its intelligence operations ...
"It simply makes clear what the GCSB may and may not do.''
Attorney-general Chris Finlayson made a stinging attack in his speech on some of the more prominent opponents of the Bill, including New Zealander of the Year Dame Anne Salmond.
Her suggestion that anyone who supported the Bill should not turn up for Anzac Day had been ''disgraceful''.
