We investigate the Kardar-Parisi-Zhang (KPZ) equation in d spatial dimensions with Gaussian spatially long-range correlated noise -characterized by its second moment R(x − x ) ∝ |x − x | 2ρ−d -by means of dynamic field theory and the renormalization group. Using a stochastic Cole-Hopf transformation we derive exact exponents and scaling functions for the roughening transition and the smooth phase above the lower critical dimension dc = 2(1 + ρ). Below the lower critical dimension, there is a line ρ * (d) marking the stability boundary between the short-range and long-range noise fixed points. For ρ ≥ ρ * (d), the general structure of the renormalization-group equations fixes the values of the dynamic and roughness exponents exactly, whereas above ρ * (d), one has to rely on some perturbational techniques. We discuss the location of this stability boundary ρ * (d) in light of the exact results derived in this paper, and from results known in the literature. In particular, we conjecture that there might be two qualitatively different strong-coupling phases above and below the lower critical dimension, respectively.