New Zealand's Prime Minister Jacinda Ardern vowed on Saturday to pass legislation to tighten counter-terrorism laws this month after a knife-wielding "extremist" known to the authorities stabbed and wounded seven people in a supermarket.

Police shot dead the 32-year-old attacker, a Sri Lankan national who had been convicted and imprisoned for about three years before being released in July, moments after he launched his stabbing spree on Friday.

Ardern said earlier the man was inspired by the Islamic State militant group and was being monitored constantly but could not be kept in prison by law any longer.

"I am committing, that as soon as Parliament resumes, we will complete that work - that means working to pass the law as soon as possible, and no later than by the end of this month," Ardern told a news conference.

The Counter Terror Legislation Bill criminalizes planning and preparation that might lead to a terror attack, closing what critics have said has been a loophole allowing plotters to stay free.

But Ardern said it would not be fair to assume that the tighter law would have made a difference in this case.

"This was a highly motivated individual who used a supermarket visit as a shield for an attack. That is an incredibly tough set of circumstances," she said.

Ardern said the man arrived in New Zealand in 2011 and it was not known to hold any extreme views. He first came to the police's attention in 2016 after he made concerning posts on Facebook.

He was later arrested at the Auckland Airport where authorities believed he was traveling to Syria. In August 2018 he was charged with possession of objectionable material and possessing weapons.

She said she wanted to explain why the terrorist was not deported but can not yet because of suppression orders.

Ardern was unable to reveal the name of the deceased attacker for now due to a court order but said she had no intention of naming him anyway.

Police were following the man when he went into the Countdown supermarket in New Lynn mall in Auckland. They said they had thought he had gone in to do some shopping but he picked up a knife from a display and started stabbing people.