The supreme court is threatening further restrictions on the legal independence of Native American communities after hearing a landmark case brought against casino operators in Michigan.

Under the US constitution, tribal lands are deemed to have sovereign immunity from certain state laws, a historic exception that has led to an explosion in Native American-operated gaming facilities in recent years.

But states are increasingly licensing their own competing casinos and the clash over jurisdiction has pitched Michigan against the Bay Mills Indian Community, which used money from a land settlement to buy gaming property outside its traditional reservation.

Michigan says the tribe opened the casino in violation of a state agreement and without the permission of the federal government. Tribal supporters claim Michigan's appeal – against a lower court ruling upholding Bay Mills' sovereign immunity from prosecution – marks the latest in a line of attacks on Native American legal rights.

In June, the supreme court also overturned parts of a 1978 law designed to protect large numbers of Native American children from being taken into adoptive custody, ruling against a Cherokee father in a case dubbed 'adoptive couple vs baby girl'.

On Monday, oral arguments in the latest case, Michigan v Bay Mills Indian Community, suggested that the conservative-dominated bench may now be taking a similarly dim view of special legal protections enjoyed by Native American commercial activities.

Justice Stephen Breyer was among several justices who rejected arguments put forward by the Department of Justice that it was up to Congress to decide whether to curtail Native American legal rights further.

“This case has tremendous implications if we follow your approach.” Breyer told the DOJ lawyer Edwin Kneedler. “It seems to me well beyond, anything to do with gaming. My belief is Indian tribes all over the country, operate businesses off the reservation, and businesses all over the country are regulated. And does the State, I guess, in your view not have the power to enforce the regulation against the Indian tribe?”

Michigan solicitor general John Bursch acknowledged the state already had other powers to close Indian casinos by force, but argued it was preferable to overturn the wider principle of sovereign immunity.

“We tried to take the least intrusive means necessary to stop the casino, to not go in with the billy clubs and the guns and to arrest tribal members, but to ask for a Federal civil injunction,” he said.

“If France or Haiti came in and opened the same casino, the state would have the full panoply of remedies available to it. And it should have those remedies because any additional immunity you give to the tribe when it's engaging in illegal conduct on lands subject to Michigan's exclusive jurisdiction, you are necessarily taking away from the sovereign authority of the state of Michigan.”

But several justices questioned the motives of Michigan in bringing the case, suggesting it preferred to seek such a sweeping change in the law because it gave state authorities more power to seize assets.

“But you wouldn't have gotten their property,” justice Sonia Sotomayor told Bursch when he explained why other remedies were not pursued. “Isn't that what this suit is about, you trying to take over the – the casino?”

The case is likely to be decided upon early next year.