Updated 2.37pm: Prime Minister John Key and his Australian counterpart Tony Abbott have wrapped up talks in Auckland by reaffirming a commitment to fighting the Islamic State.

One of the main talking points has been the threat from Islamic State, and how the two countries should respond.

Abbott says despite being peaceful nations, there is a need to stand strong. He also commended New Zealand's decision to send troops to Iraq.

"As far as I'm concerned, good on John Key for being prepared to shoulder a reasonable share of responsibility for this particular battle," he said.

Yesterday, the pair met with business leaders, where Key told the audience the two countries should be working together more closely, in a climate of trust.

"I can produce for you a bunch of official advice that will tell you there is a risk to New Zealand or there is a risk to Australia," he said. "Most of that risk won't play out."

Abbott said he wants to work with the government on free trade deals, but couldn't resist the opportunity to blame New Zealand for some of his country's problems.

He made it clear he wasn't happy with the ASEAN free trade deal in 2010.

"Once New Zealand had achieved its objectives, the shop was shut, so to speak," he said.

"The agreement that we have with ASEAN is not as ambitious."

Abbott says he'd like to see New Zealand and Australia jointly seek a deal with Europe, provided Australia's interests are preserved.

Meanwhile Australian Prime Minister Tony Abbott has dismissed talk of a challenge to his leadership as gossip.

At the media conference after the meeting, he was forced to fend off more questions about his long-term stability as head of the Liberal Party.

"I know the media like nothing better than to hyperventilate about Canberra insider gossip, but I'm not going to play that game. What I'm going to do is get on with good government."