Attorney-General Chris Finlayson has not ruled out joining iwi in court to resolve a dispute on the sale of surplus land in Auckland to private developers.
But Mr Finlayson appears to be fuming about Ngati Whatua and Tainui-Waikato's legal challenge over the right of first refusal, which he said came as a complete surprise.
The challenge to the surplus land policy has embarrassed the Government and threatened to hold up the construction of new homes.
Labour leader Andrew Little urged Housing Minister Nick Smith to resign his portfolio, saying the iwi dispute was the latest in a series of errors.
Prime Minister John Key yesterday only offered a half-hearted defence of Dr Smith.
Asked in Parliament whether Dr Smith had the housing market fully under control, Mr Key did not immediately back his minister.
"What I can say is he's outstanding," Mr Key said, to loud jeers from the Labour Party.
Ngati Whatua and Tainui-Waikato are expected to file papers with the court this week to clarify their right of first refusal on up to 500ha slated for development.
Mr Finlayson said he was waiting on advice from the Solicitor-General before deciding whether to make a joint application with iwi to the High Court.
But he appeared annoyed about the case. He said the legal challenge was "something of a surprise" because it was not mentioned by iwi until late on Sunday despite the fact he had met some iwi representatives earlier in the day.
"Would I have expected to be advised a little earlier than 5.30 on Sunday night? The answer is yes," he said.
"But look, that's the way things go and I deal with my Treaty partners in the same positive way they deal with me."
Maori Party co-leader Te Ururoa Flavell urged the Government to clarify the issue in court.
He said that the issue had "huge connotations" for iwi around the country, who had told him that they were watching the case very closely.
"If it's determined that the Crown has an ability to override some of those clauses that affects every one of their settlements."
The policy of selling surplus land came under greater scrutiny yesterday after it was revealed that Auckland iwi had been notified about the sale of one of the sites earmarked for development.
This appeared to contradict claims by Government that the sale of surplus land did not trigger right of first refusal provisions.
Dr Smith said the advice to iwi on the 9.5ha site in Massey East was sent before the Government had decided to build housing on it, and the right of refusal was never triggered.