Australia's peak Indigenous body, ATSIC, has been taken to court for neglecting Queensland Indigenous communities in its controversial carve-up of $24 million of land fund monies.

The Foundation for Aboriginal and Islander Research Action (FAIRA) said it had lodged a Federal Court application challenging a decision in March by ATSIC, which set aside $20 million for land purchases in the Northern Territory, yet only $4 million for the rest of Australia, including Queensland in 1995-97.

The general manager of FAIRA, Mr Les Malezer, said a total review of ATSIC, in particular how it and other Indigenous peak bodies would make funding decisions, was "a matter of urgency".

Mr Malezer said the distribution of the federal government's $1.5 billion land fund pool over the next 10 years would be a "funding bun fight" unless strict decision making processes were in place.

"Senate documents show that back room deals are already the convenient substitute for proper consultation," he said.

"I'm not saying corruption is on the cards, but corruption at some future time would be possible where we have millions and millions of taxpayer dollars being distributed in an ad hoc manner.

"Queensland has Australia's largest population of Aboriginal and Torres Strait Islander people, yet all we can look forward to is squabbling over the scraps left over after the Northern Territory deal.

"That's why we are mounting a Queensland based challenge."

Mr Malezer said he expected other Queensland land councils would buy into the challenge.

ATSIC now faces two legal challenges on this issue.

In early June, the NSW Aboriginal Land Council lodged a legal challenge over ATSIC's continued failure to provide all details of its decision. The NSW challenge was joined by the Roma based Birri Gubba Land Council.

Mr Malezer said Queensland had an enormous population of dispossessed Indigenous People whom land fund programs were supposed to target.

The Queensland application said ATSIC's decision was an "abuse of power" and was based on "errors of law". It said ATSIC had adopted "irrelevant considerations" in allocating a "grossly disproportionate" amount of funds to the Northern Territory.

It said ATSIC improperly exercised its powers in circumventing grant restrictions on the Indigenous Land Corporation (ILC), which at the time was not operational.

The application said ATSIC had failed to consider the needs of Aboriginal and Torres Strait Islander people in Queensland.

Currently ATSIC and the Indigenous Land Corporation share responsibility for purchasing land for Aboriginal and Torres Strait Islander People.

In 1995-97, ATSIC has around $24 million, and the Corporation around $49 million.

From 1997, the Corporation will assume sole responsibility for land fund purchases, drawing around $45 million annually from the federal government's $1.5 billion land fund pool.

ATSIC's decision, made in March, was carried on the casting vote of chairperson Lois O'Donoghue.

In a letter to Corporation chairperson Mr David Ross, Ms O'Donoghue said ATSIC was justified in spending $20 million of its $24 million pool on Northern Territory purchases given "the current inalienable freehold title opportunity in the Northern Territory" and "the totality of funds to be available through both ATSIC and the ILC until 1997".

However Aboriginal organisations have argued the way the decision was made was as bad as the decision itself, and that the current decision making process, if continued, could lead to disaster as the $1.5 billion land fund pool was divided.