"For some time the REA was seen as the long-term solution but investigations have recommended upgrading State Highway 30/Te Ngae Rd to support growth and improve Rotorua's congestion issues," Mr Bridges said.
"Nevertheless, the Government has asked the NZTA to take a further look into options for Rotorua's long-term transport network and report back before any final decision is made on whether to lift the designation for the REA."
Three iwi have land held under the designation - Hurunga te Rangi, Te Roro o te Rangi and Ngati Uenukukopako.
Hurunga te Rangi spokesman Michael Staite said he thought yesterday would be a day for celebration. "We knew an announcement was coming ... but it didn't extend to what we thought it was going to.
"We actually thought we would be celebrating today with the lifting of the designation, but no such luck.
"With the REA still on the table, we'll be making a lot of noise now," he said.
Te Roro o te Rangi spokesman Matt Heke said he was happy the Government was spending money to upgrade Te Ngae Rd, but the designation hindered iwi aspirations for its land.
"We were part of the discussion, just it didn't follow through to where we thought, so a bit disappointed at the end of the day.
"Nothing much has changed and we are still fighting that same battle to have it removed.
"Until we see it gone that's when we will know we have been successful."
Rotorua mayor Steve Chadwick said she would go into bat for local iwi to have the designation overturned and the land returned.
"This historic injustice needs to be addressed for local iwi to allow them an opportunity to manage and develop that land.
"If this package of investment announced by the Minister leads to that, this is a very important principle decision for us as a council," she said.
"There is no long-term need for that road for the next 20-50 years."