Key caused controversy last week (ends04Nov12) when he referred to a DJ's red jersey as "gay" before a charity golf match.
The PM later insisted, "It's just a slang term... I didn't really mean it as anything offensive" and claimed he understood the word to mean "weird".
However, openly-gay star McKellen is upset about Key's turn of phrase and has urged the politician to think about the language he uses as a public figure.
In a post on his website, the Lord of the Rings star writes, "(Key) said he was using the word in the sense that his children used it and not in any way to disparage gay people. Anyway, he said, the word was in the dictionary. So of course are many other words that can give offence.
"Nevertheless, Mr Key should watch his language. I'm currently touring secondary schools in (the) U.K., attacking homophobia in the playground and discouraging kids from the careless use of 'gay' which might make their gay friends (and teachers) feel less about themselves.
"So even as he supports the proposal to introduce same-gender marriages in New Zealand, I do hope John Key listens to his critics and appreciates their concern. Careless talk damages lives."