NT Chief Minister Michael Gunner has returned remote housing leases in 44 communities to the Commonwealth as negotiations over $1.1 billion in funding collapse.
Mr Gunner wrote to Prime Minister Scott Morrison on Monday telling him the leases would be returned to the federal government immediately.
There are for 73 NT Indigenous communities in total.
The move comes follows an acrimonious fortnight, with Mr Gunner and Indigenous Affairs Minister Nigel Scullion publicly accusing each other of reneging on a $1.1 billion, five-year deal to jointly fund the housing program.
NT Labor accuses the coalition of failing to provide a cent since Mr Morrison, who was Treasurer at that time, signed a deal to provide $110 million a year for five years to match the NT's funds.
Senator Scullion has similarly accused the NT of not honouring the deal, spending well below its $110 million a year and that he was "demanding transparency and accountability" on indigenous employment and business outcomes before he paid his share.
Mr Gunner told the PM in his letter "it is disheartening that the Australian Government is preferring to play politics on a matter crucial to the lives of Territorians rather than back a program that has successfully delivered more than 1300 either new or upgraded houses since September 2016," he said.
Senator Scullion described Mr Gunner's decision as crazy and a refusal to deliver Indigenous housing when any type of public housing was a constitutional responsibility of the Northern Territory government.
"The Commonwealth will carefully consider the ramifications of Gunner's outrageous decision to abandon his Aboriginal citizens without any consultation with Aboriginal Territorians," he said.
The key problem is overcrowding in poor quality housing and the flow-on effects of poor physical and mental health and exacerbated social tensions, providing barriers to schooling and participation in the workforce, Central Land Council chairman Francis Kelly says.
NT Labor says another 15,500 homes, costing nearly $3 billion, are needed in the next decade to tackle overcrowding.