WELLINGTON, Sept 6 - The Times Higher Education annual edition now places the university at 192, its lowest-ever position on the list.
The university was overtaken on the list by Asian universities, including three in mainland China.
Compared to last year, the university suffered from lower teaching and research reputations and a poorer citation impact.
Times editorial director Phily Baty said the lowered ranking was a big blow to New Zealand.
"If current trends continue then the country may not have a world top 200 representative for the first time in future years," he said.
"New Zealand will need to up its game if it wants to remain a key global player in higher education."
Tertiary Education Minister Paul Goldsmith said government funding for tertiary education had grown by 24 per cent since 2008.
"As a result, New Zealand devotes a higher proportion of our public spending to tertiary education than any other OECD country," he said.
Despite the University of Auckland's fall, a further eight New Zealand universities have maintained their performance on the list, including the University of Otago and University of Canterbury.
The University of Waikato jumped from the 401-500 band to the 351-400 grouping.
Globally, the University of Oxford is still in top place, while the University of Cambridge is second.