During the Invasion of the Waikato (July 1863 – April 1864) period of the New Zealand Wars the Imperial British forces realised they needed access to colonial ships to fight Māori.

An armed ship, HMVS Victoria, owned by the Colony of Victoria transported troops to New Zealand for the campaign and took part in bombardments of Māori.

[4] This led to the British parliament passing the Colonial Naval Defence Act 1865, which allowed the colonial governments to own ships, including for military purposes, but they would have to be under the Royal Navy's command.

[5] In 1866 the British Admiralty advised colonies that if they possessed vessels governed by the act, they must fly the Royal Navy Blue Ensign but that they must also include on the flag the seal or badge of the colony.

[6] New Zealand did not have a colonial badge, or indeed a coat of arms of its own at this stage, and so in 1867 the letters "NZ" were simply added to the blue ensign,[7] following a decree by Governor George Grey on 15 January 1867.