Federal Indigenous Affairs Minister Mal Brough yesterday told a remote community on the Tiwi islands north of Darwin that the islands would only get a new school if it agreed to a 99-year lease.
Mr Brough delivered the ultimatum when he visited the community of Nguiu on Bathurst Island.
A boarding school for Tiwi Island youth is planned for nearby Melville Island.
But Mr Brough told the Nguiu community the federal government would not deliver on a $10 million funding commitment for the new school if it rejected the lease proposal.
This was because private investors would be needed to run the school, and they would only sign up if there was the security of land tenure provided by the federal government initiative, he said.
"The Tiwi people are very passionate about improving their education and we want to make that a reality and (99 year leases) gives us the vehicle to be able to do that," Mr Brough said.
"You have a right to school, every Australian does and I don't think it has been adequate here ..."
Asked by a concerned local during a community meeting if there was a connection between the new school and 99 year leases, he replied: "Yes there is, because of land tenure."
"We are not going to spend $10 million on something nobody owns ... it's very dependant on there being able to be a block of land that someone actually has control over."
"When we heard about the school everyone was just so excited, we could not stop smiling," said Teresita Purintarameri, from the Wangatunga womens' group.
"But then when people found out about the 99-year leases they started thinking that the two things were tied up. People feel blackmailed," she said.