Under current NSW law, Aboriginal land councils can make claims on crown land that is unused, not needed or not being used lawfully, a measure designed to compensate Indigenous people for historical dispossession.
But proposed changes introduced by Labor to state parliament would mean any land the government had issued a lease for could be deemed to be in lawful use, fuelling fears of land-banking and dispute sites being left fallow.
On Tuesday, that proposal was put on the backburner by Lands Minister Steve Kamper after widespread condemnation from Indigenous representatives, with any changes placed on pause until after consultation on proposed amendments takes place.
Mr Kamper had pointed to land claims where technical non-compliance due to invalid leases had potentially made available lands set aside for fire stations, marinas and tennis courts.
NSW Aboriginal Land Council chief executive Clare McHugh described Mr Kamper's comments as scaremongering by inaccurately accusing First Nations people of a land grab.
She blasted the government's lack of consultation on what the changes would practically mean.
"This has been done by stealth," she said.
''Government consultation processes are often not very respectful of the general public - Aboriginal people, most certainly - and at a bare minimum should include enough notification for people to engage with information being disseminated to community.''
Indigenous leaders from across NSW gathered outside state parliament on Tuesday morning to oppose the changes.
Mr Kamper said the land claims system was broken, with a backlog of more than 43,000 historical claims dating back as far as the 1980s.
"The idea was if there is crown land sitting unused, it should be claimable and provided to the Local Aboriginal Land Council, we stand by this principle," he said.
"The proposed changes we have put forward are there to address edge cases that became claimable due to technical non-compliance, such as an invalid sub-lease ... these sites are well utilised by the local community."
A series of disputes over Indigenous land claims have wound up in court, including a fight over a prime property in Sydney's eastern suburbs that ended with a Aboriginal group's High Court win.
The narrowly won court battle in September resulted in the disused, inner-city Paddington Bowling Club being handed over to the local land council.
Nathan Moran, chief executive of the Sydney-based Metropolitan Local Aboriginal Land Council, said the government's approach smacked of double standards.
''If we owned an asset and someone's not using it, we'd be charged with mismanagement or not doing our job ... it's not our fault the crown didn't do its job,'' he said.
The Law Society of NSW said the changes fundamentally altered land understood to be claimable via High Court precedent.
''(This) has the potential to thwart otherwise valid claims by Aboriginal communities to disused crown land (and) was not a recommendation of the statutory review,'' president Ronan MacSweeney said.