A couple in New Zealand were "horrified" after they discovered an unused condom inside a small sports bag that came with a happy meal gift bag they bought for their seven year old granddaughter.

The incident happened Tuesday night when Suzanne and Rowan Hatch stopped at a Wellington McDonald's outlet and bought the gift pack as a pre-theatre treat for the girl.

"I was pretty horrified, really," grandfather Rowan Hatch told the Dominion Post after his wife spotted the condom still in its wrapper inside the sports bag.

"The fact my granddaughter was going to look in the bag and find this thing - it was going to be difficult to explain, really. She's only seven," he said.

The restaurant manager swapped the bag for a pencil case, and a spokesperson for the food chain said the incident was being investigated.