New Zealand's Court of Appeal on Wednesday rejected a bid to stop a Chinese company from buying a bankrupt dairy farm group, in a case that has stirred heated debate about foreign land ownership.

The court refused an application from a rival bidder to overturn government approval for China's Shanghai Pengxin Group to buy the 16-property Crafar Farms in a deal reportedly worth NZ$210 million ($171 million).

The government approved the sale in April after a review process lasting more than 12 months which was accompanied by fierce debate about land ownership in the farm-reliant country, the world largest dairy exporter.

Critics labelled the deal a foreign "land grab" while the government, mindful of New Zealand's burgeoning NZ$10 billion a year trade relationship with China, said it would benefit the economy.

Prime Minister John Key, who in the past has expressed concerns about New Zealanders becoming "tenants in their own land", said the sale involved only a tiny portion of the country's farmland.

"The bid by the Chinese company can add value and allow us to have good distribution into China," he told reporters Wednesday.

Shanghai Pengxin welcomed the decision and said it was looking forward to embarking on a programme to improve the farms

"We will set up a local team to explore opportunities to add value to New Zealand milk through further processing by New Zealand companies and the sale of high-value dairy-based products to China," it said in a statement.