The Maori Party has opposed the latest legislation to overhaul Child Youth and Family as risking creating a "stolen generation" of Maori children.
Legislation that last night passed its first reading will clear the way for the second stage of major state care reforms that will replace CYF with a new Ministry for Vulnerable Children, Oranga Tamariki.
The law now prioritises placing a child with a member of their family or wider hapu. If that's not possible, officials must try to place the child with someone of the same tribal, racial or cultural background.
The overhaul says that should happen where practicable and reasonable, but removes the priority and puts emphasis on placing the child in a safe, loving home.
Maori Party co-leader Marama Fox hit out at that change in her speech in Parliament, saying it undermined the Government's claims of a "child-centred" approach.
"If 63 per cent of Maori children make up the children in CYFs, if 71 per cent of the children in prison - young people in prison are Maori - we are the mainstream.
"The entire makeup, the entire structure, the entire rebuild of CYFs needs to be done in accordance with Maori principles.
"We cannot repeat the tragedy of the past. We cannot have a new stolen generation, by removing links to whakapapa in this new design. It wasn't Maori families that failed their children, the system has failed their children.
"It's not a question of a safe, loving stable home or a Maori home."
Green Party MP Marama Davidson labelled the legislation racist.
"The narrative that we continue in this House by supporting this legislation, which wants to weaken the priority to keep tamariki Maori with whanau Maori," she said.
"When we uphold that legislation, we are feeding the narrative that Maori do not love our children as much, and that we do not understand how to properly and safely care for our children."
Social Development Minister Anne Tolley said the legislation reflected the need for bold and radical change.
Under the changes, officials would need to ensure that, wherever possible, the relationship between children and their whanau is respected and strengthened, and that the family, whanau, hapu and I will have a voice and a role in decisions.
The legislation also amends the principles of the Act to explicitly recognise the Maori concepts of mana tamaiti/tamariki, whakapapa and whanaungatanga.
Labour's spokeswoman for children Jacinda Ardern said removing the priority to place children with whanau or wider hapu was a "massive step backwards".