Clinical trials involving the transplantation of pig cells into humans in a potential breakthrough treatment of diabetes has been approved in New Zealand.

Health Minister David Cunliffe said the process, known as xenotransplantation, had huge potential for diabetes sufferers.

"This is critical new technology that could well make New Zealand a world leader in both the treatment of diabetes and in the use of xenotransplantation," he said.

Biotech entrepreneur Living Cell Technologies Ltd (LCT) wants to transfer cells from the pancreas of pigs to produce insulin in type-1 diabetes sufferers.

Though the technology could produce significant benefits for patients, it is highly controversial given the potential for a pig virus to be transferred that could then became capable of spreading as an infection in people.

"It remains clear to me that any such trial will always carry a very low residual risk, so the key issue has always been whether this risk is sufficiently small and can be successfully managed," Cunliffe said.

"I am confident that the stringent conditions I have imposed on this trial represent best practice and meet our international obligations to the World Health Organisation."

The New Zealand Medical Association (NZMA) warned in 2005 that a deadly virus transmission through this pathway could potentially kill millions of people.

When the current application for a clinical trial in New Zealand was made, a Wellington think tank, the Sustainability Council, urged the minister to consult the public on the "community risk" in the event that transplanted pig tissues triggered an infectious disease in humans.