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New Zealand's biggest telecommunications company says proposed laws to clamp-down on online abuse could instead spark digital censorship.

Speaking before MPs today, John Wesley-Smith from Telecom said under the proposed laws internet firms that hosted websites or social media forums would end up removing content as soon as someone complained, to avoid potential penalties.

The complaints system would also effectively give censorship power to complainants who might be acting maliciously themselves.

"We are concerned that this will create unhealthy sensitiveness for online content hosts to remove any content that is complained about," he said.

"This raises questions about censorship and freedom of speech."

For content that it did not control, such as third-party websites, the problem would be more pronounced and Telecom's only recourse would be to shut them down entirely, he said.

Telecom was speaking before the justice and electoral select committee which is considering a bill that would criminalise "harmful digital communication", including inciting suicide online.

It would also create a new authority to consider complaints and issue take-down notices, including against internet service providers.

Some internet-content hosts, such as news sites or Trade Me, would be protected from criminal fines but only if they acted appropriately on complaints.

Most submitters today were broadly supportive of the bill but some argued it would infringe freedom of speech or would fail to reach online forums based overseas, such as Facebook.

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Cyber censorship feared from new laws