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The National Party leader told a party regional conference in Queenstown yesterday the Government wanted to create a regional water entity that would be co-owned by Ngai Tahu.
"Some of the mayors were so appalled at what was presented, they have reached out to me,'' Ms Collins told the conference.
But her comments have been slammed by Ngai Tahu as "deceptive", while Dunedin Mayor Aaron Hawkins said they were aimed at creating "fear and division".
"We have more than enough to get on with in local government without getting drawn into Judith Collins’ increasingly desperate dog whistle strategy."
There had been no discussion of Ngai Tahu co-ownership of water assets, "but even if there was, it wouldn’t be worth beating the drum and fear-mongering over", Mr Hawkins said.
"Why wouldn’t we be prepared to have those discussions, and be grown-up enough to have conversations about Maori asset ownership in this country?
"There’s a deep irony in that Judith Collins was a senior minister in a government that was more than happy to sell off 49% of our publicly-owned energy companies, but now is throwing her hands up in horror at the idea a publicly-owned asset might be owned by Maori."
Clutha Mayor Bryan Cadogan, who is chairman of a group representing Otago and Southland’s 10 city, district and regional councils in discussing the reforms, said it was "imperative we stick to the facts".
"To come out and say it’s co-ownership or co-governance, it’s way too early to make calls like that."
The reforms were the biggest issue facing local government for at least a generation, and involved crucial issues of democracy and councils’ future liabilities, as well as Ngai Tahu’s role, Mr Cadogan said.
"We need to have constructive dialogue, we need to have our discussions with our whole communities, and we need very much to stick to the facts."
The Government is proposing to replace the role of 67 local councils in delivering Three Waters services with between three and five new Crown entities.
Mr Cadogan said councils remained "woefully short on detail" about what was being proposed, and he had called a meeting on May 28 with Minister for Local Government Nanaia Mahuta, who has ministerial responsibility for the reforms, Ngai Tahu and Department of Internal Affairs officials to address that.
Dr Te Maire Tau, co-chairman of Ngai Tahu freshwater governance group Te Kura Taka Pini, said Ms Collins was "seeking headlines".
Her claim the Government was planning to give the tribe a 50% ownership stake in South Island council’s Three Waters assets was "deceptive and wrong".
The tribe’s proposal for an entity encompassing 24 of the 67 councils, on which it was consulting the councils, "explicitly does not include a Ngai Tahu ownership'', Dr Tau said.
A slide released by Ms Collins showed one option proposed by independent consultants, which was not pursued by the tribe, he said.
"Ngai Tahu wants to design the structure of the new entity with the Crown, and share governance responsibilities.
"The tribe has a huge interest in the water infrastructure in the South Island. We're like the rest of South Island communities, particularly because we're rural, and we fundamentally don't have clean drinking water.''
Co-governance would provide a safeguard against any future government that wanted to privatise the waters assets that were being transferred from councils, he said.
In a statement, Ms Mahuta said Ms Collins’ claim was false.
"We have been very clear Three Waters infrastructure will remain 100% in public ownership.” — Additional reporting The New Zealand Herald