Mr Peters made the startling comparison on Sunday during his State of the Nation speech, a campaign event for his populist New Zealand First party.
As has long been his practice, Mr Peters - first elected in 1973 - railed against political correctness, the media and immigration levels in a wide-ranging hour-long speech in Palmerston North.
A recent string to his bow has been sharp criticism of the Labour government between 2020 and 2023 under Jacinda Ardern and Chris Hipkins.
Labour's "co-governance" practice, in which Maori tribes were invited to share power with government authorities in areas where they had a Treaty of Waitangi-mandated interest, was "race-based theory", according to Mr Peters.
"Where some people's DNA made them sadly ... their DNA made them somehow better than others," he said.
"I've seen that kind of philosophy before. I saw it in Nazi Germany."
In subsequent media interviews, Mr Peters said he was referring to a 2023 Maori Party sport policy that included the phrase "it is a known fact that Maori genetic make-up is stronger than others".
The Maori Party was not part of the last government and deleted that phrase from its policy after criticism.
Mr Peters' speech set off a frenzy of responses, including from Holocaust Centre of New Zealand spokesman Ben Kepes.
"It is actually offensive to the memory of those who died and to those who survived in the Holocaust to start throwing around terms like 'Holocaust' or 'Nazi' willy nilly," he told the NZ Herald.
Mr Kepes said the improper invocation of the mass murder of Jews was too commonplace in society.
At his weekly press conference, Prime Minister Chris Luxon declined to rebuke his deputy, but said he would discuss it with him.
"I don't think those comments were very helpful," Luxon said.
Mr Hipkins, now opposition leader, said Mr Peters was behaving "like a drunk uncle at a wedding", which drew a clapback from Mr Peters.
"Your 'drunk uncle' comment is laughable coming from someone who would get drunk on a wine biscuit," he said to Mr Hipkins in a social media post.
Mr Hipkins and Mr Peters shared a cabinet table together during Jacinda Ardern's coalition government from 2017, but fell out when Mr Peters' party failed to be re-elected in 2020, and have refused to work with each other again.
Mr Peters, now in a right-leaning coalition with the National and ACT parties, also used the speech to warn of budgetary shortfalls given rising debt and low growth forecasts.
He asserted the government was facing a $NZ5.6 billion ($A5.2 billion) shortfall to pay for its campaign promises.
However, in a reminder of his power in the three-party coalition, when asked if the three parties could still pay for its coalition agreements, he said "our ones, yes."
Mr Peters' tirade shows the duality of his political persona.
On the one hand, the 78-year-old is a scrappy mudslinger who is happy to brawl with opponents, and doesn't fear launching into tricky ground such as racial politics or political correctness.
Indeed, it's how he gets his headlines.
On the other hand, he is an elder statesman of New Zealand's diplomatic service, picked by three prime ministers to serve as foreign minister, a role he currently holds.
Mr Peters sandwiched his trip to Palmerston North between a diplomatic mission to India, Singapore and Indonesia last week, and the visit of China foreign minister Wang Yi on Monday.
Mr Wang, who is also travelling to Australia this week, is the highest-profile Chinese leader to visit New Zealand in several years.
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