The new Patent Bill had been pending in parliament for more than two years and was expected to impose an outright ban on software patents.
The weasel words "as such" were introduced before the bill was passed, so that while software "as such" cannot be patented, a patent for an embedded system will include the software as well as the hardware.
The back-flip can probably be attributed to the Trans-Pacific Partnership Agreement, a trade treaty being pushed by the US. New Zealand is one of 11 countries involved in the negotiations.
In a statement, the New Zealand Open Source Society said the change in wording "has more or less thrown kiwi software developers under a bus".
It added: "The minister (Commerce Minister Craig Foss) may believe that replacing the explicit exclusion of software patents with an 'as such' is striking a clever compromise.
"If that is the case, he needs to be disabused of his mistaken impression: those six letters represent a legal loophole the size of a bus, which have made a mockery European Union patent legislation's intent: to block software patents.
"Any hope that our government would show visionary leadership in patent reform seems to have been dashed. This is a victory for US corporations who have refined the art of the 'patent infringement extortion', and have broken the software marketplace overseas, using software patents to set back any would-be competitors."