Its original proposal would have cut all six of its roles managing masses of children's records stretching back decades.
"Why would one do that? What is the motive behind that?"
A Waitangi Tribunal report said it would cause harm to vulnerable children.
Two iwi groups have filed an urgent appeal which was heard on Wednesday.
There are concerns it could affect New Zealand's ability to uphold UN obligations.
The Tribunal is relatively powerless to force the Government to change its actions.
The Prime Minister says he's open to devolution.
"It's so wrong the Ombudsman was the only way that we could have been seen."
Peter Boshier has delivered a mammoth report and issued a call to action for the Government.