An emergency quarantine zone has been established around the Beehive building in Wellington, after reports of senior government ministers inexplicably falling ill.
A civil emergency has now been declared in Wellington, and health officials have been meeting under urgency to consider how to address the situation.
The crisis became apparent after a government minister began to behave in an erratic manner.
According to Ministry of Health officials the minister, whom officials have refused to name for privacy reasons, began to display symptoms of severe memory loss and bewilderment, while talking in a confused manner about cabbage boats.
But it was not until another senior figure within the administration began to behave in a similar manner that officials realised they were dealing with some form of contagion.
The man, whom officials have labelled "JK" for privacy reasons, appeared to suffer sudden memory loss when questioned by journalists on Tuesday about his knowledge of various National Party matters.
"JK" appeared to regain some of his memory by the end of the interview, officials say, but they are still deeply concerned that a virulent infection may have eaten part of his brain.
Dr Briar Lundy of the Ministry of Health, who is overseeing the Wellington quarantine operation, said that people close to JK had reported seeing a gradual change in the patient over the last few months.
"The patient was apparently full of life, jovial and happy-go-lucky, right up until November last year. But since then he appears to have undergone a sharp decline.
"People who have observed JK over a number of years say he is looking more tired and careworn than ever before. When that is combined with the sudden memory loss and irritability, and a series of inexplicable policy decisions that fly in the face of common sense and reason, it becomes clear that we're dealing with some kind of brain infection.
"We've taken the precaution of quarantining the two victims, to prevent them from infecting the brains of others. The worry now is that other ministers may already be experiencing similar symptoms, and they will all need to undergo detailed testing."
Officials are considering seeking the issue of an epidemic notice under special legislation passed in 2006 at the height of the avian flu scare. However, the issue of an epidemic notice requires the approval of the Prime Minister, and officials believe that in the circumstances it may prove difficult to get that approval.
"The Prime Minister is unavailable right now," Dr Lundy told journalists when asked whether Mr Key would provide approval for an epidemic notice, though she refused to elaborate further.
A cordon has now been placed around the Beehive, and army personnel wearing hazmat suits are patrolling the area with guns. They have orders to keep people away from the building, while those inside have been isolated as a safety precaution.
Officials were considering throwing a wider cordon around the entire Parliamentary complex, after reports of a non-ministerial government MP acting in an erratic and irrational manner.
But the plan was called off after one of the man's caucus colleagues explained the man's behaviour.
"That's just Tau. He's been like that for years."