Chief Minister, Paul Henderson, has warned the Federal Government that many indigenous people displaced by the emergency intervention are creating unrest and straining police capacity.
Mr Henderson told the Minister for Indigenous Affairs, Jenny Macklin, in confidential discussions last month that the intervention was having a perverse effect on towns and cities and further action was needed to make it work.
His comments are the first official indication that the $1 billion territory intervention to eradicate child abuse and improve education standards is running into difficulties despite bipartisan support.
Alice Springs is battling to cope with the unintended consequences of the intervention, including a rise in public drinking and a jump in the number of violent assaults.
The town's once-thriving small business sector has also been hit by Centrelink's quarantining of welfare payments, a policy that encourages Aborigines to shop at the big three retailers Coles, Woolworths and Kmart.
Leaked minutes of a ministers' meeting in Darwin last month show Mr Henderson confirmed that many people had migrated from remote communities to urban centres to avoid alcohol and gambling bans and welfare quarantining. Cards issued by Centrelink for food and clothing are more easily traded in urban centres such as Alice Springs for cash and alcohol.
The newly elected mayor of Alive Springs, Damien Ryan, this week called on federal and territory governments to rethink aspects of the intervention and face the unintended negative effect on indigenous and non-indigenous residents and business.
There is consensus among police, politicians, business groups and welfare agencies that an influx of bush people into Alice Springs has led to further overcrowding and a worsening of conditions in the 20 or so town camps home to more than 2000 people.
The camps, notorious for violent assault, domestic violence, substance abuse and theft, appear mostly untouched by the intervention. At one camp people drink openly despite a liquor ban. Many children do not go to school and can be seen playing among empty beer cans and bottles.
Territory crime statistics show that in December in Alice Springs the number of assaults rose 16 per cent from the previous quarter to an average 93 assaults each month, and house break-ins rose 17 per cent from the previous quarter. But much of the violence in the camps goes unreported.
Emergency workers report greater numbers of people forced to sleep in parks and the Todd riverbed because of the acute accommodation shortage.
In an interview, Mr Ryan urged an immediate review of Centrelink's policies that were affecting small businesses. He also called on the big retailers to provide work for the town's swelling indigenous population.
A Country Liberal Party MP and former opposition leader, Jodeen Carney, said there were insufficient resources to implement the dry-town policy and called on governments to take the matter more seriously.
Ms Macklin is understood to be reviewing the situation and has indicated that $18 million in housing funds is available to refurbish accommodation.
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