England looked to have the match under control when they bowled New Zealand out for 210 before their own batting crumbled in less than 38 overs.
James Franklin ripped through England's top-order then Daniel Vettori destroyed the middle order and tail after Jacob Oram had rescued Kiwi innings with a stroke full 86 in his comeback match after a three month lay-off due to injury.
Andrew Flintoff captured four wickets for England before the Pommies limped to their lowest total yet on the disastrous tour of Australia.
New Zealand had not won a match in the one-day series until Tuesday, but earned a bonus point because of the size of the margin to leapfrog into second place in the standings behind Australia, who are unbeaten at the halfway stage.
England had New Zealand in all sorts of trouble when they reduced them to 67-5 in the 24th over on a lifeless pitch that made fast scoring almost impossible. Flintoff captured the vital wicket of New Zealand skipper Stephen Fleming then polished off the tail to finish with four for 21 from his 10 overs.
James Anderson took two wickets, but ruined his figures with an expensive last over that yielded 14 runs while Jon Lewis, Monty Panesar and Paul Collingwood bagged one each
Collingwood also held three catches and was involved in the run out of Franklin as the Kiwis were bowled out on the final ball of the 50th over.
New Zealand were at risk of falling well short of 200 after Fleming (20), Peter Fulton (24) and Ross Taylor (15) all made starts but failed to go on with the job.
But Oram, playing his first international match since injuring a hamstring, smashed six fours and two sixes for his career best in one-dayers and help the Kiwis finish with a respectable total.
He shared a 120-run partnership with gloveman Brendon McCullum for the sixth wicket before both batsmen threw their wickets away as England mopped up the last five batsmen for just 23 runs in four a half overs.
England's chances of winning was already in trouble when they lost Mal Loye, Andrew Strauss and Ian Bell before the total had passed 32, but Irish-born batsman Ed Joyce offered a ray of hope with a determined 47.
However, nobody else made it to 20 and only two other players made doubles figures as the last six wickets tumbled for 28 runs.
Hosts Australia take on down in the dumps England on Jan 26 in Brisbane.
New Zealand 210 all out in 50 overs (Jacob Oram 86, Brendon McCullum 30, Peter Fulton 24; Flintoff 4 for 21, Anderson 2 for 47, Jon Lewis 1 for 31) beat England 120 all out in 37.5 overs (Ed Joyce 47, Andrew Strauss 19; Vettori 4 for 24, Franklin 3 for 17, Bond 2 for 32) by 90 runs