DHARAMSALA: New Zealand held their nerve to edge out Australia by eight runs in a tense World T20 Group Two match on Friday and move closer to a place in the semi-finals.

On a high after beating hosts India in their opening game, New Zealand posted a modest 142-8 before defending the total with disciplined bowling and tight fielding against their trans-Tasman rivals.

Australia came into the tournament with an embarrassment of top-order riches and decided to open with Usman Khawaja and Shane Watson.

The decision meant no place for Aaron Finch, who was captain of the side barely six weeks ago and is the top-ranked batsman in this format of the game.

Khawaja (38) added 44 runs with Watson (13) before Australia suffered a collapse to slump to 66-4 at the halfway mark of their innings.

Glenn Maxwell (22) and Mitchell Marsh (24) tried their best but Australia kept losing wickets at regular intervals and needed 19 runs off the final over sent down by Corey Anderson.

Anderson dismissed James Faulkner with the first ball to dash Australia's slender hopes of a narrow win as New Zealand rose to the top of the group table.

“I thought around 150 was about par,” Australia captain Steve Smith rued. “Obviously their spinners bowled extremely well in the middle and we didn't respond well.

“We lost wickets in clumps which you can't do in T20 cricket...we just did not get any partnership.”

Mitchell McClenaghan justified his selection at the cost of off-spinner Nathan McCullum, claiming figures of 3-17. Spin duo of Mitchell Santner (2-30) and Ish Sodhi (1-14) also troubled Australia.

“Our spinners were fantastic and brought us back to the game,” McClenaghan said after collecting the man-of-the-match award.

“It's nice to show some teams that we can play in these conditions ... but there are two more games and in this format, we still got to win two more games to get through,” he added.

Earlier, Martin Guptill (39) gave New Zealand a flying start in a 61-run opening stand with skipper Kane Williamson (24) who decided to bat first on a dry track at the picturesque stadium in the north Indian hill station.

Guptill greeted Aston Agar by hitting his first two balls out of the ground and a third six off the final ball of the over ensured the left-arm spinner was swiftly removed from the attack.

Maxwell proved why he is such an asset for the side, taking a catch in the deep to send back the dangerous Guptill, dismissing Williamson with his second delivery and sending back Anderson in his next over.

The 27-year-old remained in the thick of things, taking another catch to dismiss Luke Ronchi and firing in a bullet throw to run out Mitchell Santner.

Grant Elliot struck a quickfire 27 down the order but New Zealand managed only 84 runs in the last 14 overs.