Mr Key said it was steel-hulled and there was every likelihood that it could have made it to New Zealand.
"The advice we had was that it had the capability of making it all the way to New Zealand so we alerted the systems that we have in the way that we would work through those processes."
The boat put out a distress call in relation to sick people on board and it was boarded by Australian authorities.
Mr Key said he did not know what had happened to the people on the boat, but he understood the boat was sent back to Indonesia.
"It fits in with what I have been saying for quite some time, that these people smugglers are going to get hold of more robust boats, with better capability of a steel-hulled boat, so it certainly could have made it to New Zealand."
Speaking to reporters at Parliament this morning, Mr Key said he did not know the nationality of the people on board, but there has been a recent stream of Rohingya asymlum seekers from Myanmar and from Bangladesh.
Mr Key said the concern would be that if one boat made it New Zealand "it would open up a pretty easy pathway to replicate".
ABC News reported today that Indonesian police said the boat had crashed onto a reef after being turned around by Australian authorities.
The passengers included 54 Sri Lankans, 10 Bangladeshis, one person from Myanmar and five additional crew.
Among the passengers were four women and three toddlers, it was reported.
The passengers told police they were trying to get to New Zealand.
They were now being held on Rote Island off West Timor. They had crashed into a reef near Landuti Island, and were found by fishermen.Mr Key would not say when the events happened but according to AFP and ABC it was in the past few days.
If this particular boat had got closer, New Zealand would have had a range of options depending on how close it was.
"We didn't get to the point where we had to make some of those tougher calls," Mr Key said.
A law change in 2013 gave the Government greater powers to manage a "mass arrival" of asylum seekers, which was defined as more than 30 people.
In the event of a mass arrival on New Zealand shores, the Government has power to detain them for up to six months.
This detention could be extended by 28 days at a time with approval from a District Court judge.
The detention powers were designed to allow agencies to inquire about asylum seekers' backgrounds and check any pending refugee claims.
Australia's action against asylum-seekers in boats toughened when the conservative Coalition Government replaced Labor in 2013 and according to AFP, since then Australia has stopped 18 boats from reaching its shores.
Those who make it are sent to refugee camps in Nauru or Papua New Guinea or boats are escorted back to their country of origin.
Beat-up, says Labour
Labour Party leader Andrew Little said he did not believe there was any risk of a boat of asylum seekers making it to New Zealand and accused Mr Key of beating up the issue as a distraction.
"There was talk about hoards of refugees coming down from Indonesia and from Asia. It has never happened. It is most unlikely to happen.
"The risk or threat of refugee boats coming down to New Zealand I think is so minimal as to be frankly zero. There is no need to panic or overreact."
Mr Little believed Mr Key was using it as a ploy to distract from other issues, saying it was "National Party standard distraction material".
"Raise some sort of bogey that he thinks is going to be there and get people a bit excited and divert attention from things like dairy prices, lower national income, the sort of issues that are exercising a lot of people at the moment."
He said New Zealand's distance and the dangerous nature of the Tasman Sea made it highly unlikely a boat of the type usually used by people smugglers could make the journey.
Mr Little said legislation passed in 2013 to allow New Zealand authorities to deal with mass arrivals was prompted by a cruise ship landing in Canada carrying Sri Lankan refugees in 2010. In that case, the vessel was seaworthy and chartered by the families of those it was carrying.
- By Audrey Young of the New Zealand Herald
