The captain of a LAN Chile Airbus A340 flying to Auckland was shocked to see the flaming debris less than 10km from his craft.
New Zealand air traffic control authorities said the space junk posed a major safety risk and would be investigated.
The aircraft, flying from Santiago in Chile, came close to the remnants of the re-entering satellite on Tuesday evening while flying at about 30,000 feet in NZ airspace.
A plane spotter who was tuning into a high-frequency radio broadcast said the pilot reported the rumbling noise from the space debris could be heard over the noise of the aircraft.
"He saw a piece of debris lighting up as it re-entered (the atmosphere)," the spotter said.
"He was a very worried pilot, as you'd imagine.
"(It's) not something you come across every day and I'm sure the LAN Chile crew will have a tale to tell."
Ken Mitchell, spokesman for Airways NZ, said Russian authorities had notified that a satellite would be coming out of orbit yesterday morning.
"It appears the satellite has entered early and by sheer chance a LAN Chile flight was in the area," Mr Mitchell said.
Sorry, doesn't wash. Damage control.
"It's not uncommon for a satellite to come down in this part of the world, but it's uncommon for an aircraft to be in the vicinity.
"It's a considerable concern to us and we're keen to ensure it doesn't happen again."
In 2001, Chile snubbed an invitation by Russia to watch the re-entry of the Mir space station in waters about 3000km east of NZ's southern tip.
Chile said it opposed using the ocean as a burial ground for space junk.
At the time, a Russian official said any potentially dangerous substances on Mir's fragments would be burned off during re-entry.
According to russian version of the article, this space junk fell 12 hours earlier. They also added that usually those kind of operations are VERY precise. So what's up with that?