A Northern Territory senator says many small Indigenous communities are worse off under the Federal Government's Indigenous mutual obligation scheme.

Prime Minister John Howard visited the community of Wadeye, about 230 kilometres south-west of Darwin last week.

The visit came after he signed a five-year agreement with Chief Minister Clare Martin to improve the delivery of services to Indigenous communities in the Northern Territory.

Labor Senator Trish Crossin says the announcement heralded a reduction in funds for the community's school.

"The Prime Minister has allocated $114,000 over three years, plus a one-off funding of $40,000 for nutrition," she said.

"But Port Keats was getting around $104,000 every year."

Senator Crossin says under the new agreement, the committee that used to receive the funding no longer exists and the school will have to apply for only half the funding it previously got.

"He says one thing but on the other hand delivers less funding to Indigenous kids at Port Keats for their education," Senator Crossin said.

"Of course what this Government should do and we've been calling on the Government to do is to scrap this program and to go back to the way it was funded in previous years.

"That is an automatic payment of funds to these schools."