The Canadian government is reinstating funds frozen under the controversial First Nations Financial Transparency Act, Indigenous Affairs Minister Carolyn Bennett says.

The government is also halting compliance measures that required bands to post detailed financial information online.

In a news release issued Friday, the minister said the government will suspend court actions against First Nations that have not complied with the act.

"We will work in full partnership with First Nations leadership and organizations on the way forward to improve accountability and transparency," she said in the statement. "This can not be achieved without the engagement of First Nations and its members."

Forty-three First Nations were waiting on the Liberal government to release more than $12 million in funding, which was held back by the previous Conservative government.

The First Nations Financial Transparency Act brought in by the Conservatives, required 581 bands across Canada to release their financial information or have their government funding cease.

Bennett said these "initial steps" will lead the way to discussions on transparency and accountability that are "based on recognition of rights, respect, co-operation and partnership and that build towards a renewed, nation-to-nation relationship with Indigenous Peoples."

Aboriginal leaders have called the legislation prejudicial because it requires reporting of non-taxpayer-supported streams of income.

First Nations claim that information is already provided to government, and that publicizing it violates treaties as well as protections to privacy under the Charter of Rights and Freedoms.

38 First Nations fail to file

As of Friday, 38 First Nations had not had a completed set of documents published online.

Bennett said she will work with Justice Minister Jody Wilson-Raybould to review laws to ensure the Crown is "fully executing its obligations" in accordance with constitutional and international obligations.

Assembly of First Nations National Chief Perry Bellegarde called it a "welcome move."

"First Nations fully support accountability but Bill C-27 is a flawed piece of legislation that does not respect our rights and must be repealed," he said in a statement. "Today's announcement gives us an opportunity to work together on a better approach where First Nations are accountable to their citizens first and the government is accountable to the public for its funding to First Nations."

National Chief Dwight Dorey of the Congress of Aboriginal Peoples also applauded the move.

"We are encouraged that these monies will be made available and that the First Nations people living off-reserve in remote rural and isolated communities will benefit from the minister's decision," he said in a statement.

A taxpayers' watchdog group condemned the government's decision, calling the transparency act a "critical tool" for band members to hold their political leaders to account.

"This government was elected on a promise to improve transparency and accountability, and this decision does exactly the opposite," said Canadian Taxpayers Federation federal director Aaron Wudrick in a release.

"A law without consequence for non-compliance is a toothless law. As such, soon many First Nations people across the country will again be in the dark as to how their elected leaders spend public dollars."