Mr Key said: "Who knows what might come out the other end but there might be a workable solution that benefits everybody."
Asked whether some of the Auckland land would be offered to Ngati Whatua, he said: "Not necessarily that. But there might be another way through the issue."
Several Maori leaders said the Government acted in bad faith by not offering the land to Auckland iwi ahead of private developers from New Zealand and overseas.
Rahui Papa, who chairs Waikato-Tainui's executive committee Te Arataura, said the Government's plan to "circumvent" the right-of-first-refusal (RFR) mechanism undermined the Crown's Treaty settlement with the Waikato iwi and damaged their relationship.
"The RFR process was established as a way in which Waikato-Tainui could buy back land that had been confiscated," he said. "In total, 1.2 million acres was taken and a paltry 2 per cent returned. Clearly the RFR mechanism is an important and fundamental element of the settlement."
Mr Papa said he had written to Dr Smith to seek clarification before considering further action. Dr Smith's office said the minister had not yet considered Mr Papa's letter.
Ngai Tahu said its right of first refusal had been breached several times when the Conservation Department carried out land swaps with private landowners.
Maori Party co-leader Marama Fox said the Government was morally obliged to offer the land to Ngati Whatua ahead of developers. "As we predicted, this would have ramifications for many iwi if the Government do not hold up their end by ensuring that iwi are consulted and given right of first refusal over what is now available land."
Ngati Whatua called in its lawyers last week after Dr Smith said that the Crown's Treaty deal with Auckland iwi allowed surplus land to be sold off - without consulting iwi - if it was held for state housing.