Opposition parties have been scathing of the proposal, which would allow children to attend online schools set up by tertiary institutions and private companies.
The online schools would be known as Communities of Online Learning (COOLs).
Teachers' unions have warned it would let in low-quality low-cost private operators.
New Zealand First education spokesperson Tracey Martin said it was one of the most dangerous things she had ever seen in education.
"It's the final nail in the coffin devaluing trained and qualified teachers."
Children would also miss out on social skills learnt in a classroom, she said.
"There's also the start of a work ethic. So you get up in the morning, you go to school at a certain time, there's a way to behave inside that social environment, you do a job, the children are there to learn, and you work in a team to create things and sometimes individually.
"Those are all human conditions that need to be in play here," Ms Martin said.
But Education Minister Hekia Parata said the proposed changes would not threaten classroom-based schools.
"This is another option. They will not replace schools - they will supplement and complement them, and there will be a very rigourous accreditation process for anyone who proposes to become one."
Older students who were disengaged from conventional ways of learning might be among those who would benefit from an online school, Ms Parata said.
"[Or] they might be wanting to choose a range of subjects that aren't commonly put together and available at the neighbourhood schools available to them."
Parents would not be forced to enrol their children in online schools.
"We are enabling, not compelling."
Children's social skills would still develop through interaction with family and friends, she said.
Massey University Institute of Education director John O'Neill said research into online schools was limited and inconclusive.
"There's only one very obscure piece of evidence, from a very obscure source, that's used to justify the argument that we should be focusing on converging face to face and distance learning."
ACT Party leader David Seymour said the government already had an application for an online charter school, and even though that was turned down, he thought many more providers would be interested.
He said he was not opposed to children learning online from overseas companies.
"It's quite possible that you're going to have a person, whose particular circumstances are such that they haven't got on very well in the existing school system and this is the solution that will work with them and expand them to their maximum potential," he said.
Green Party education spokesperson Catherine Delahunty said online schools opened the way for privatisation.
"There's a lot of evidence overseas that charter schools grab these opportunities and really try to make the most of them for profit, and not necessarily for the benefit of young people at all," she said.
The establishment of online schools would be part of a bill amending the Education Act.
Other changes included a proposal to expand the current power for school boards and allowing the Ministry of Education to step in earlier if schools were not doing well.