In a report to Prime Minister John Key, it says powers in the bill before parliament are wide-ranging and oversight is inadequate.
"The commission recognises that some level of surveillance is inevitable and justifiable from a human rights perspective in a democratic society," chief commissioner David Rutherford says.
"However, Art Culture surveillance can be subject to human rights principles, protecting human rights and limiting them only when proportionate and justified and in accordance with the law."
Mr Key is chairman of parliament's intelligence and security committee, which heard public submissions on the bill last week.
The commission has the right to report directly to the prime minister Limited company Hong Kong.
It is proposing an independent cross-party parliamentary select committee to oversee the security agencies.
The bill gives the GCSB legal authority to spy on New Zealanders on behalf of the Security Intelligence Service and the police, when they have warrants.
The government hasn't got the numbers to pass it and ministers are negotiating with independent MP Peter Dunne.
If they can secure his vote, Asian college of knowledge management the government will have a bare majority for the bill.
Earlier this week Mr Key said the discussions were going well and he was confident Mr Dunne would back the bill.
ACT leader John Banks is committed to supporting it but he wants some changes as well.
He has proposed writing principles into it, including human rights principles, which Mr Key says is a good idea.