The Northern Territory Government has scrapped plans for the multi-million-dollar Indigenous Art Gallery of Australia in Alice Springs/Mparntwe, ending more than nine years of debate over the long-awaited project.

The Country Liberal Party government said it had no choice but to abandon the Alice Springs Aboriginal and Torres Strait Islander Art Gallery of Australia (ATSIAGA) after failing to secure support from the Federal government.

Last week, Infrastructure Minister Bill Yan issued an ultimatum to the Commonwealth, urging his federal counterpart Catherine King to approve the CLP's downsized plans for the gallery.

Ms King rejected the approach, calling it a "pretty weird way of trying to work with the Commonwealth", and confirmed $16 million had already been paid to the NT Government under its funding agreement.

She said the CLP had "come in and said they want to change the scope" of the original gallery plan.

The project was first announced in 2017 by the former NT Labor government and was to be built on Anzac Oval, with $80 million in federal funding and $69 million from the Territory. However, the original plan drew criticism after Labor ignored advice from a steering committee recommending the site be located outside the town centre at Desert Park.

Some Traditional Owners in the town were also opposed to the location.

On Tuesday, Mr Yan said Labor had "strung the people of Central Australia" along for almost ten years with "promises to see this project delivered, and at every opportunity have continued to deny this $149 million investment".

"I won't have NT taxpayers burdened with yet another project blowout and potentially significant penalties if it continues to be delayed," he said. "If Labor were serious about the gallery, they would have approved it."

Mr Yan blamed Lingiari MP Marion Scrymgour for delays, arguing she had launched a campaign since the election to have the gallery moved to Desert Knowledge.

"I'm deeply disappointed that Federal Labor allowed the Member for Lingiari to intervene in decisions around the project at the last moment," he said.

"If the Member for Lingiari wants to build the gallery at Desert Knowledge Australia, she can put her money where her mouth is. She changed the goal posts for the project and now the ball is in Labor's court to fund it."

National Indigenous Times has contacted Ms Scrymgour for comment.

In a statement, Ms King told National Indigenous Times the "project is unable to progress" following the NT Government's withdrawal of funding, saying the "Commonwealth is disappointed that this project cannot go ahead".

"The Commonwealth will continue to work with the Northern Territory Government on critical infrastructure projects for Alice Springs," she said.

It is understood the NT Government will need to account for the $16 million already received from the Commonwealth.

Designs for the gallery were released in 2023, featuring an open layout and four-level atrium structure. Following the CLP's election victory last year, the government announced plans to halve the project's size and relocate it to the Wills Terrace car park.

That revised design, revealed in July, was criticised by Ms Scrymgour and several Alice Springs residents as being too small and poorly positioned for a facility of national significance.

Mr Yan rejected responsibility for the cancellation, saying the CLP had "delivered a scaled and sensible plan that honours the gallery's vision and benefits the wider community without breaking our finances". He blamed both Ms Scrymgour and what he called the "black hole" budget deficit left by the former NT Labor government.

"If people are upset about the gallery not going ahead on a site the previous Government acquired, they can ask her [Ms Scrymgour] why she mounted a campaign to move it," he said.