The funding boost - over four years - comes in response to the 15 March terror attack and follows international developments on the Christchurch Call.
The Department of Internal Affairs will get roughly $4m extra a year, allowing it to hire about 17 full-time staff to boost its investigative, forensic, intelligence and prevention work.
The new team will work alongside a 13-strong unit - set up in 1996 - that deals with child sexual exploitation material.
In a statement, the minister responsible, Tracey Martin, said the government had to improve it systems given the ease and speed with which the Christchurch shootings spread online.
"While terrorist and violent extremist content is objectionable and therefore illegal under current law, the changes mean we can target this material in a similar way to how we target child sexual exploitation material, by working quickly with online content hosts to remove it as quickly as possible."
The team will work with international and domestic partners to investigate and prosecute those committing offences.
The Chief Censor will also receive $2.4m over four years to help speed up his ability to make rulings on harmful content.
Prime Minister Jacinda Ardern said countering violent extremism online was important part of the response to the 15 March attacks.
"Our online world must be a force for good where we can exchange ideas, share technology, and maintain civil liberties, while protecting New Zealanders from objectionable content," she said in a statement.
"We need to meet that challenge as a country and as a global community."
InternetNZ's chief executive Jordan Carter said setting up a team to boost online investigative work was a good step.
"Everyone hopes I think we don't have another major Christchurch-style incident to deal with, but even last week with the attack in Germany it showed that these things do come up from time to time. And making sure that we've got some people on the ground ready to deal with it is a good thing."
This article was first published on Radio NZ.