Indigenous Australians will play a greater role in efforts to close the health and education gap, through a formal partnership with both the federal and state/territory governments.
The development has provided hope to some indigenous groups that faster progress can be made on the Closing the Gap targets, after yet another report showing they are scarcely on track.
Prime Minister Scott Morrison delivered the 11th annual Closing the Gap report in Canberra on Thursday, calling for a new approach to targets that had been "set up to fail".
Just two of the seven Closing the Gap targets are on track to be met, more than a decade after the original report.
"The process has reflected something of what I believe is the hubris of this place - it did not truly seek to partner with Aboriginal and Torres Strait Islander peoples," Mr Morrison told parliament.
The report shows efforts to get more indigenous children into early education are on track, but improvements to life expectancy, infant mortality and employment rates are not.
The prime minister says the targets need to be updated through a "refresh", initially set out in 2016, that make states and territories more accountable and give indigenous Australians more say.
That will be achieved through a partnership between state and territory governments and peak indigenous groups at the Council of Australian Governments, due to be finalised by mid-2019.
Chief executive of the Australian Medical Services Alliance Northern Territory, John Paterson, says the welcome collaboration will help turn around the "appalling" outcomes of Thursday's report.
It will put indigenous people at the core of efforts to close the gap and allow tactics to be tailored to each state, he said, stressing the original target took a "one size fits all" approach.
"Issues can be very diverse from state to state, territory to territory...we need the flexibility," he told AAP.
Reconciliation Australia chief executive Karen Mundine said the increased involvement of indigenous Australians is overdue.
"It is simple common sense that people, who live each day with the problems Close the Gap is trying to address, will have the greatest knowledge and understanding of the causes and solutions to these problems," she said.
The revised targets will involve a renewed focus on education.
Teachers who work in very remote areas for four years will have their university debts cancelled in a bid to lift indigenous education standards, Mr Morrison said.
Opposition Leader Bill Shorten welcomed the changes and greater partnership with Aboriginal Australians.
He also reiterated that, if successful at the next election, Labor would hold a referendum on having an indigenous voice in parliament.