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Wellington has not formally been a US ally since 1986, when Washington suspended the three-way ANZUS defence treaty -- which also involved Australia -- over New Zealand's legislation banning nuclear warships from its waters.
Key said Clinton's three-day visit beginning Thursday, where she will sign a "Wellington Declaration" outlining closer ties between the countries, marked a new chapter in the relationship.
"I think it will show that the last vestiges of any concern about the anti-nuclear legislation have gone," he told TVNZ.
Key was reluctant to spell out details of the Wellington Declaration before Clinton's arrival but said it would not include a formal defence pact that would reinstate New Zealand as a fully-fledged US ally.
"New Zealand is going to continue to run an independent foreign policy," he said.
"We're not going to re-invoke ANZUS, so in the truest sense of the word, where Australia is an ally (of the US), we are not -- but we've got the next best relationship."
The US State Department's assistant secretary for East Asian and Pacific affairs Kurt Campbell said in September that the US-New Zealand relationship was "profoundly underperforming" and there was room for improvement.
"The United States and New Zealand see the world in such similar terms -- in fact, in many respects, much closer than some countries that would be described as formal allies in the current environment," he said.
Campbell said the Wellington Declaration would include cooperation on issues of nuclear non-proliferation, politics, climate change and working together in the Pacific.
Key said US and New Zealand troops could train together even though the anti-nuclear legislation, which remains in place, means Washington imposes conditions on military cooperation.
New Zealand has participated in the US-led campaign in Afghanistan, with 140 personnel carrying out reconstruction work in Bamiyan and 70 special forces troops in the country and believed to be operating in Kabul.
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