A listening device typically used by law enforcement and spy agencies was found in the All Blacks' hotel room ahead of Saturday night's clash with the Wallabies.
The device was uncovered on Monday after team management instructed the All Blacks' security detail to sweep the room for bugs, the NZ Herald has reported.
The team have been staying in the Sydney Intercontinental hotel since Sunday.
The surveillance device was planted in a chair which had been deliberately cut to allow it to fit, and then sewn and glued back together so as to make the device undetectable.
New Zealand Rugby (NZR) confirmed that the incident was being investigated, with CEO Steve Tew announcing that "a listening device was found in a meeting room this week during a routine security check."
Mr Tew also said that the hotel had immediately launched an investigation and that the NZR have "informed the Australian Rugby Union, and jointly we have now decided to hand over the investigation to the Australian police.”
It is understood the hotel has hired its own investigator.
“We are taking this issue very seriously, and given it will be a police matter, it would not be prudent to go into further details.”
Reports suggest the device was working, meaning that whoever was listening in would have heard the game plan for the match. It is usual that All Blacks coach Steve Hansen would give his expectations to the team on a Sunday, well in advance of a match.
According to Australian federal law, it is "an offence to knowingly install, use or cause to be used, or maintain a listening device to record a private conversation, whether or not the person is a party to that private conversation."
All Blacks management have been informed of the legislation surrounding the device's use.
The room where the device was found had been marked as private and was inaccessible to anybody other than players or management, meaning the perpetrator must have known in advance where the All Blacks would be based.
While this is the first time definitive proof of spying has been found, there have been hunches of numerous attempts against the All Blacks in the past.