All Blacks axe Savea
This comes as New Zealand look to wrap up the series against Wales in the second Test at Wellington on Saturday.
The axing of the try-scoring wing has allowed World Cup reject Dagg to reclaim the fullback slot with Ben Smith moving to the right wing.
The only other change to the team that won the first Test 39-21 in Auckland last week sees lock Luke Romano out in an expected move to make way for a fit-again Sam Whitelock.
Coach Steve Hansen excused "a little rust" with his world champions in the first Test and wanted an improvement to wrap up the three-Test series with a game to spare.
"There is an expectation that we will need to improve right across the board, with better accuracy, in both our attack and defence, combined with more physicality and intensity," he said.
But as much as he wanted to keep faith in his first Test selections — aside from bringing back Whitelock who has recovered from a hamstring injury — he was unwilling to retain Savea.
Waisake Naholo, who also had a mixed performance on the wing, gets another chance to prove himself.
Hansen's loyalty also meant no room for Tawera Kerr-Barlow who was selected in the All Blacks' squad as the number two scrum-half behind Aaron Smith.
A broken hand kept him out of the first Test earning a recall to the bench for TJ Perenara who retains his spot even though Kerr-Barlow has been cleared to return to action.
Dagg has rebounded from missing the World Cup squad last year with outstanding form for the Canterbury Crusaders and is solid under the high ball, an area where the All Blacks had problems at times last week.
Eight months ago Savea was one of six finalists for the international rugby player of the year award and he won the try of the year gong for his efforts against France in the World Cup quarter-finals.
He also scored the first try for the All Blacks last weekend but otherwise had an indifferent outing, twice being beaten by Wales' George North, before he was replaced a few minutes after half-time.
"He hasn't come into this campaign in great form," assistant coach Ian Foster said with Savea having been sidelined twice this year by the Wellington Hurricanes, the first time over fitness and then for breaching team protocols.
The blockbusting wing, who has scored 39 tries in 42 Tests, also missed the All Blacks first three Tests last year because of fitness issues.
New Zealand: 15 Israel Dagg, 14 Ben Smith, 13 Malakai Fekitoa, 12 Ryan Crotty, 11 Waisake Naholo, 10 Aaron Cruden, 9 Aaron Smith, 8 Kieran Read (captain), 7 Sam Cane, 6 Jerome Kaino, 5 Brodie Retallick, 4 Sam Whitelock, 3 Owen Franks, 2 Dane Coles, 1 Joe Moody.
Replacements: 16 Nathan Harris, 17 Wyatt Crockett, 18 Charlie Faumuina, 19 Patrick Tuipulotu, 20 Ardie Savea, 21 TJ Perenara, 22 Beauden Barrett, 24 Seta Tamanivalu.
Date: Saturday, June 18
Venue: Westpac Stadium, Wellington
Kick-off: 19.35 (07.35 GMT; 08.35 UK time)
Referee: Jaco Peyper (South Africa)
Assistant referees: Jérôme Garcès (France), Wayne Barnes (England)
TMO: George Ayoub (*Australia)
Agence France-Presse