Australia's Federal Territories Minister, Jim Lloyd, says changes to Norfolk Island's political status are vital for the survival of the tiny island.
Australia is proposing to reduce Norfolk Island's powers of self government, which the Minister says are too complex and too expensive for an island with a population of around 17 hundred to maintain.
Mr Lloyd says two options have been proposed.
"One is where they would have their territory re parliament and probably look after legislation for state type facilities and legislation but the Commonwealth would take back immigration, customs and quarantine, and in return would also support facilities such as health and education which we don't currently assist Norfolk Island with."
A Commonwealth Grants Commission is expected to visit Norfolk Island shortly to assess what is the best option.
But Norfolk's Chief Minister, Geof Gardner, says the federal government's decision is based on flawed economics, bad politics and blind prejudice.
Mr Gardner says Canberra has promised consultation but instead has made a series of decisions to remove legislative powers and to effectively run Norfolk Island by remote control from a department in Canberra.
He says this is in stark contrast to the New Zealand government's approach to its Pacific partners, as illustrated by the recent referendum in Tokelau.