Two passengers were killed when the fleeing vehicle crashed into a tree in the Auckland suburb of Morningside in an early morning pursuit in October last year.
The Independent Police Conduct Authority said the chase began after the car was seen driving 133km/h in an 80km/h speed limit zone.
During the chase, the police officer hit speeds of 200km/h.
The IPCA found that it was appropriate for the officers to have began a pursuit.
But once it became obvious that the fleeing driver was not going to stop for the police, and was in fact accelerating away from them at very high speed, the officers should have abandoned the pursuit.
"The speeds at which the officer drove on this occasion were clearly unjustified and constituted dangerous driving," IPCA chair Judge Colin Doherty said.
"Indeed, it is the Authority's view that rarely, if ever, would driving on a public road at a speed of two and a half times the posted speed limit not constitute dangerous driving."
The IPCA also found that the police should have initiated a criminal investigation into the officer's driving.
In a statement, the police said they accepted the IPCA's findings.
Assistant Commissioner Tusha Penny said the chase was an "absolute tragedy" and it could have been avoided if the fleeing driver had stopped for the police.
Ms Penny said the officer's actions were considered from a criminal perspective.
"A senior investigator was involved and a detailed legal opinion sought regarding the actions of police that night," she said.
The driver of the fleeing vehicle was last week sentenced to three years in prison after he was convicted of two charges of reckless driving causing death and two charges of reckless driving causing injury.
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