Former Treaty Negotiations Minister Chris Finlayson says the way Ihumātao has been handled is a "dog's breakfast".
A resolution to the dispute is expected to be announced this week, but Finlayson says the Government stepping in to broker a deal is "troubling".
"It's idle to speculate until we know the detail but it seems to me that if people go on land and won't go off, the Prime Minister says we'll negotiate with them and Fletcher walks away with $45 million, having invested $24 million - is that particularly clever?" Finlayson told The AM Show on Tuesday.
"Let's wait until we get the details, but it is troubling."
Protesters made headlines last July when they refused to leave the land after being given an eviction notice.
Fletcher Building was meant to use the land for a 480-property development, but protesters occupying the site said it should be protected.
Protest group Save Our Unique Landscape (SOUL) says the land is a "crucial part of one of the last remnants of the archaeological rich stonefields landscapes across Auckland" and "holds the stories of the earliest inhabitants of our country".
The group says that due to its cultural importance the land should never have been given status as a Special Housing Area.
"Local and central Government used the fast-track, developer-friendly provisions of the Special Housing Areas Act 2013 to designate the land," the group says on its website. "Mana whenua and community concerns were sidelined."
In contrast to the protesters, Ihumātao's iwi authority originally supported the proposed development, however in September last year the Māori King announced a consensus had been formed by mana whenua to to see "their land returned".
Last month, the Māori King announced that a "pathway to a resolution" had been found to the dispute, with the details expected to be made public by Waitangi Day.
It has been reported - though it remains unconfirmed - that the Government will buy the land back for $45 million, $19 million more than Fletcher Building originally paid for the land.
Finlayson says private property should be off limits for Treaty settlements - "it has to be", he said.
"I think the smarter thing would have been to have got them off the land and then said to people - well if you want to go deal with Fletcher and do a private deal good on you."
He called the situation "a dog's breakfast"
The site is believed to be one of the country's earliest settlements, but Finlayson said Ihumātao was not unique in being privately held land of historical importance.
"From my knowledge of Treaty settlements, as nine years as minister, there are plenty of parcels of land around the country that are in private hands that are historically significant. So what's to stop a settle iwi actually approaching people and trying to do a deal?
"But to occupy, that's not the way we do things here."