Indigenous Australians Minister Malarndirri McCarthy has condemned the "alarming" incarceration rates in the Northern Territory and Queensland, reaffirming her plan to introduce penalties for jurisdictions that fail to meet Closing the Gap targets.

The Closing the Gap agreement, signed in 2020 under then-Indigenous Affairs Minister Ken Wyatt, set national targets to address inequality but did not include funding or enforcement mechanisms - something Senator McCarthy described as "problematic" during Senate Estimates last week.

"There is currently no penalty in the agreement," she said.

"I'm trying to look at federal funding arrangements with each state and territory over whatever the agreement might be as to how we can input into that so that there is some kind of penalty as to why you're not achieving targets."

This week, the Minister reiterated the need for action, telling the ABC that the growing rates of Indigenous incarceration and early deaths "demand our country's full attention".

"There is no doubt that Queensland and the Northern Territory's targets are alarming, in particular the Northern Territory, around the high incarceration rates of First Nations people, in particular youth," she said.

Last week, National Indigenous Times heard from experts on the extraordinary levels of human rights violations - especially towards Indigenous people - in Queensland. The state locks up more First Nations children than anywhere else in the country, and has introduced laws to allow kids as young as ten to be given life sentences.

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In the Northern Territory, incarceration has reached crisis levels, with more than one per cent of the total Territory population behind bars - nearly 90 per cent of them Indigenous, and almost half on remand. Despite this, the CLP government has defended its tough-on-crime agenda, which includes lowering the age of criminal responsibility and tightening bail laws.

Children in both states are also being held in adult watch houses. In one case, a 13-year-old child with disabilities was detained for 24 hours after allegedly shoplifting candy in the NT. The child was denied access to medication brought by their foster carer and was not allowed contact despite repeated requests.

Both Queensland and the NT have resisted reforms under Closing the Gap, saying their law-and-order priorities come first.

At a Standing Council of Attorneys-General meeting in Sydney in August, Queensland's Attorney-General Deb Frecklington reportedly said the LNP government "won't be changing anything" on youth justice laws. The NT's Attorney-General similarly argued that Closing the Gap "could not come at the expense of community safety."

Nationally, only four of 19 Closing the Gap targets are on track to be met, with outcomes worsening in key areas including adult imprisonment, child removals, suicide, and early childhood development.

In the NT, eight of 17 targets are deteriorating - the worst in the nation.

Earlier this year, the North Australian Aboriginal Justice Agency (NAAJA) urged the federal government to suspend funding for remote policing in the NT, describing incarceration levels as a "crisis". In August, the family of late NT Supreme Court Justice James Muirhead called on the Prime Minister to intervene, describing the CLP's approach as "regressive".

Senator McCarthy told the ABC that potential changes to funding arrangements are "a long way down the track".

"I have to do my homework on it. I obviously have to speak with my colleagues, I have to speak with the states and territories, but I am serious about having a look at it," she said.

She also rejected the notion that youth incarceration was necessary for safety.

"Here the responses of the [state and territory] attorneys-general in this regard, where they say that safety should come first before closing the gap, I don't think the two are inseparable," Senator McCarthy said.

"We should have a safe community, but we should be able to do it working with our young people to make sure they stay out of prisons."