WHITEHORSE -- The Yukon government's plan for a vast Arctic wilderness has been tossed back in its lap after a court ruled the proposal would violate treaties and undermine long-established agreements.

"Yukon undermined reconciliation by failing to honour the letter and spirit of its treaty obligations," Justice Robert Bauman of the Yukon Appeal Court wrote in a ruling released Wednesday.

Bauman's decision means the territory must resume negotiations on how best to manage the Peel watershed, a huge area of tundra, mountains and rivers in Yukon's northwest corner.

The court's decision reopens talks that have been ongoing since 2004 on how to balance development and conservation on land that makes up 14 per cent of Yukon's total area and is highly valued by aboriginals.

Bauman was ruling on an appeal filed by the territorial government, which sought to overturn a decision of the Yukon Supreme Court. That court ruled a year ago that the government was wrong to impose major changes at the last minute on a land-use plan that had been agreed to through a process embedded in land-claim settlements.

The government's plan would have increased the amount of land open to some type of development to 70 per cent from 20 per cent.

"Yukon failed to reveal its extensive plan modifications," Bauman wrote. "This undermined the dialogue central to the plan for reconciliation."

If the government wants more land opened for energy or mineral development, it has to make its case and negotiate for it through the Peel Watershed Regional Planning Commission, Bauman said.

It's too soon to know what the territory's approach will be, said Mark Pindera, a senior official with the Yukon Justice Department.

"(The ruling) does provide guidance to government as to what is required," he said.

Pindera said the territory is pleased the ruling gives Yukon another chance to argue its position, which the Supreme Court's original decision did not. But he admits there's a big gap between what the government wants and what the planning commission recommended.

Jeff Langlois, a lawyer involved in the case, called the ruling a win for all aboriginal groups whose land claims guarantee some influence in land-use decisions.

"(Governments) can't just walk through the motions of the process and then implement what (they) want," said Langlois, who represented the Gwich'In Tribal Council, which was an intervener in the case.

"These collaborative processes have meaning. It's not just an opportunity for First Nations to blow off steam."

Langlois acknowledged the First Nations involved will now have to resume talks they thought were complete.

The fate of the Peel has been a polarizing issue in Yukon for years.

The region has many active quartz mines and large deposits of iron and coal. There are also thought to be significant gas reserves in the Eagle Plains area.

However, the watershed is largely pristine. There are no settlements and only one gravel road.

It includes six major river systems and undisturbed populations of moose, caribou, sheep, wolves, wolverines, lynx and bears. Extensive wetlands are home to millions of water birds.

The area has been home to aboriginals for millennia and holds some of the earliest evidence of human activity in Canada. Dene continue to use it extensively for hunting, trapping and gathering.