Forest and Bird says the Fisheries Minister must do more to save sea lion pups.
Research by the Department of Conservation shows a 31% fall in the number of pups born this season - a record.
Forest and Bird says that while the decline cannot be directly linked to squid fishing, the industry is threatening the population's ability to recover.
The minister, Phil Heatley, raised the number of sea lions that can be killed as a result of squid fishing this season from 81 to 113.
But he says the fishers have voluntarily lowered that number to 95, in response to the latest figures.
Kirsty Knowles, from Forest and Bird, says that still threatens the population's ability to recover, and the quota should be gradually reduced.