New Zealanders who have lived and worked in Australia for more than five years are to be allowed to apply for citizenship under a new deal reached by the leaders of the two countries.

In recognition of a "special" relationship between the two countries the Australian Government announced that it will provide a streamlined pathway to Australian citizenship for many New Zealanders.

Australian Prime Minister Malcolm Turnbull said that New Zealanders and Australians have a shared history and destiny and no two nations could be closer but while New Zealanders already have special arrangements that allow them to enter easily and live in Australia, these arrangements do not provide a pathway to citizenship.

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The new visa pathway will be available from 01 July 2017 for Special Category Visa holders who are ordinarily resident in Australia and, at the time of application, have lived in the county for at least five years.

These new arrangements will give many New Zealanders permanent residence status and enable them to apply for Australian citizenship if they meet certain criteria, including contributing to Australia, demonstrated through income tax returns which show assessable income at least equivalent to the Temporary Skilled Migration Income Threshold (TSMIT) for the qualifying period.

They must also pass the usual mandatory health, character and security checks and the pathway will be made available within the Skilled Independent category of the General Skilled Migration stream of Australia's annual Migration Programme.

Turnbull explained that a special category visa holder who had been earning more than $54,000 a year, the current minimum pay for a skilled migrant, could seek to become an Australian citizen. It is thought up to 70,000 may decide to do so.

"This will enable a large number of New Zealanders who are here and have been working here for five years, to be able to apply for citizenship. They will obviously be subject to the usual health and security checks in the normal way. I think this is a very important recognition of the very close ties between Australia and New Zealand," he added.

"This is a positive step towards recognising the significant contribution New Zealanders living in Australia make to Australian society. It means more Kiwis who have made their lives in Australia will be able to enjoy the same rights and entitlements as other Australians," said New Zealand Prime Minister John Key.

"While not all New Zealanders will meet the requirements, this announcement will help to address some of the challenges facing New Zealanders who arrived in Australia after 2001 without a clear pathway to citizenship," he added.

The announcement was also welcomed by the Maori Party which has lobbied for change for years, although its co-leader Marama Fox said there are concerns that the salary threshold could prevent many New Zealanders who earn less from being eligible.

"We also worry that some New Zealanders will not be able to afford to pay for the special visa. This visa doesn't provide security for our people living there to access government support services, until they obtain permanent residency a year later," said co-leader Te Ururoa Flavell.