Lindy Chamberlain's story that a dingo took her baby daughter Azaria was not believed but the government released her from prison anyway, former Northern Territory chief minister Steve Hatton has revealed.

Speaking on the release of confidential 1986 Northern Territory cabinet documents, Mr Hatton told ABC news that following the sensational discovery of Azaria Chamberlain's matinee jacket at Uluru, the release decision was made.

"We didn't believe the dingo story, but we didn't believe Lindy should be in jail for murder, we thought it was a harsh outcome," Mr Hatton said of the decision.

"There was a natural fairness about that decision, whether you thought her guilty or not."

Advertisement understands that Mr Hatton's disbelief of the dingo story may not have extended to all members of the 1986 Northern Territory (NT) cabinet.

But the extraordinary discovery of the jacket on a remote side of Ayers Rock as police searched for a British tourist who had slipped and fallen was enough to secure Chamberlain's release from Darwin's Berrimah prison in February 1986.

The NT Cabinet documents reveal that then Attorney General Marshall Perron had to create legislation to hold an inquiry into the case following the matinee jacket's discovery which threw Chamberlain's conviction into serious doubt.

The discovery of the jacket "opened up a whole can of worms ... we had to find some way to get the whole case reviewed," Mr Hatton told the ABC.

"Much of the evidence at the trial ... was directed to the condition of clothing," Mr Perron told NT Parliament at the second reading of the bill which is included in the Cabinet documents.

"Mrs Chamberlain has maintained that the infant was wearing a matinee jacket at the time of her disappearance and it may be that the fact of the finding of the jacket and other items in the place where it was found and its condition will throw additional light upon the circumstances of the child's disappearance."

Nine-week-old Azaria Chamberlain went missing on August 17, 1980 from the family tent at the base of Uluru where Lindy Chamberlain, husband Michael and their three children were camping.

Lindy said she saw a dingo leave the tent and uttered the words, "a dingo's got my baby".

A massive search by police and Aboriginal trackers found only Azaria's torn and bloodied jumpsuit, singlet and nappy near a dingo's lair by the rock.

Azaria Chamberlain went missing on August 17, 1980 from the family tent at the base of Uluru. Photo / Supplied
Azaria Chamberlain went missing on August 17, 1980 from the family tent at the base of Uluru. Photo / Supplied

A coroner's inquiry supported the account of Lindy and Michael, a Seventh Day Adventist pastor, but that was quashed and in 1982, Lindy was charged with murder and Michael with accessory after the fact of murder.

A jury heard evidence that Lindy had slit Azaria's throat with scissors in the family car and deposited the jumpsuit in an attempt to simulate a dingo attack.

Chamberlain's assertion that Azaria had been wearing a matinee jacket over the jumpsuit was not believed and went against her.

Heavily pregnant with daughter Kahlia, Lindy was sentenced to life without parole and imprisoned in Berrimah Women's jail.

Briefly released for the birth, she was returned to Berrimah where she remained until five days after the matinee jacket was discovered when the NT Government made a decision to free her.

Campaigners who fervently believed in Lindy Chamberlain's innocence had been arguing for her release, but it is impossible to know what would have happened without the death of English tourist, David Brett on Uluru in 1986.

In January 1986, Mr Brett was hiking on an evening climb when he lost his footing and fell to his death on a little frequented side of Uluru.

Eight days later, police found his body in an area full of dingo lairs below the bluff from which he had fallen.

They also discovered a once white jacket of a baby. It was Azaria's missing matinee jacket.

On February 7, 1986 Lindy Chamberlain walked from prison.

The NT Supreme Court acquitted the Chamberlains in 1988. The couple was compensated and a final inquest in 2012 found baby Azaria was taken by a dingo from the campsite.