He said parts of the city should never be rebuilt, TVNZ reported.
"The liquefaction damage from the ... earthquake is so great, and the land damage, the early indications are that it's so significant that we can't remediate it in any time frame," he said.
Key said the Earthquake Commission will begin assessing properties this week.
About 80 percent of homes outside of the downtown area have running water again and about 96 percent have power, officials say.
Key said about 5,500 employers with 28,000 workers have applied for the government support.
He also announced a national memorial service for the 166 victims of the Feb. 22 earthquake would be held Friday.
Canterbury province is declaring a holiday so people can attend the service in Christchurch's North Hagley Park.