The South American side will now face the runners-up of Group E, while Slovakia, who stunned world champions Italy 3-2 in the other group game will face the winners of that group - probably the Netherlands.
New Zealand, ranked 77 in the world, also had the chance of reaching the last 16 but never really troubled Paraguay goalkeeper Justo Villar during the match.
Shots on target could be counted one hand and the best of those came in the second half with Manchester City forward Roque Santa Cruz stinging the hands of All Whites keeper Mark Paston with a 25-yard free-kick.
New Zealand finish with three draws from three matches and finishing one place above 2006 tournament winners Italy means the All Whites bow out with pride intact and reputation enhanced.
FIFA World CUP 2010 - Group F standings
Group F W D L F A GD Pts Paraguay 1 2 0 3 1 +2 5 Slovakia 1 1 1 4 5 -1 4 New Zealand 0 3 0 2 2 0 3 Italy 0 2 1 4 5 -1 2