In a move that overrides the NT branch of the ALP, Ms Gillard appears to have dumped Senator Crossin - an MP of 15 years - to install Ms Peris, who is not yet a member of the party.

Ms Peris, who was the first indigenous Australian to win a gold medal (in hockey) and also represented Australia in athletics, will campaign for the Northern Territory seat currently held by Senator Crossin.

OPINION: PM's right to punt on Peris

Ms Crossin told reporters in Sydney on Tuesday that the NT branch of the Labor Party had already started its preselection process for the 2013 federal election.

"This announcement by the Prime Minister today totally undermines that process and undermines the right of members in the NT to preselect whom they will want," she said.

But indigenous leader Warren Mundine says Julia Gillard should be congratulated for ''correcting a wrong within the Labor Party'' by endorsing Ms Peris to become Labor’s first indigenous representative in federal parliament.

''I have always argued they have got to correct this wrong, otherwise it was an embarrassment for the party,'' said Mr Mundine, a former Labor national president who quit the party last November partly because he was disillusioned by Labor’s treatment of indigenous Australians.

''‘We couldn’t continue going on saying that we were the party for aboriginals without having people sitting in the parliament.

''Today is an historic day, the Prime Minister needs to be congratulated for her stance, and Nova needs to be congratulated for putting her hand up and running.

Former NT Labor politician Marion Scrymgour, who is indigenous, has been challenging Senator Crossin for the top spot on the Senate ticket.

Senator Crossin said she was only told of the move to install Ms Peris as a Senate candidate last night.

Her apparent axing follows Labor’s NT election loss last year in which it suffered heavy defeats in rural areas as indigenous voters defected to the Country Liberal Party.

Mr Mundine said it was sad that Senator Crossin had to be replaced but that controversy should be put aside to focus ''on the historic moment''.

Many within the Labor Party saw Mark Arbib’s resignation from the Senate last year as an opportunity to appoint Mr Mundine as Labor’s first indigenous representative.

But after Kevin Rudd’s unsuccessful leadership challenge, Ms Gillard chose Bob Carr to fill the vacant Senate spot and to replace Mr Rudd as Foreign Minister.

If Ms Peris is successful, she will be the first indigenous woman to sit in the federal parliament as well as the first indigenous MP for federal Labor.

Ms Gillard said that while she was ''very proud'' of Labor’s work for indigenous Australians since the time of Gough Whitlam, she was ''troubled'' that Labor had never been able to ''count amongst our number an indigenous Australian''.

The Prime Minister described Ms Peris as a ''household name'' and talked of her grit and determination on and off the sporting field.

''I believe Nova will make a great contribution in the federal parliament,'' Ms Gillard said.

A Labor MP, who did not wish to be named, said the matter would inevitably be seen in a leadership context because Senator Crossin voted for former leader Kevin Rudd in last year's leadership ballot.

''Twelve months ago we were told Kevin Rudd made decision on his own and in a chaotic style and she’s [Ms Gillard] gone and done this,'' the MP said.

''People will remember how [Senator Crossin] voted last year.''

Labor was keen to have an indigenous MP, the MP said, but noted there were ''long serving'' ALP members such as former party president Warren Mundine who had been unsuccessfully looking for a seat for years.

''This doesn’t take anything away from Nova at all but Trish Crossin hasn’t been given the dignity to make her own decision,'' the MP said.

'Honoured and humbled'

An emotional Ms Peris thanked Ms Gillard for the ‘‘amazing opportunity’’.

‘‘I stand here before you all today not only as an Australian but as a proud Aboriginal woman . . . I certainly understand the significance of this opportunity and I am very honoured and humbled.’’

Ms Peris - who says she has always been a Labor voter - is not a member of the Labor Party.

Ms Gillard said the party's national executive would ''resolve'' that issue.

''I'm not going to make it routine for me to intervene in party processes,'' Ms Gillard said. ''But I think there is a national significance here.''

Ms Gillard said that she would let Senator Crossin make her own comments, but suggested that she had asked the senator - who has been in federal parliament for 15 years - to stand down.

''Of course there are only so many positions and that makes tough choices, inevitably tough choices. Choices need to be made about the Labor team and about the people that we put forward,'' Ms Gillard told reporters in Canberra.

''I have made a decision and that is it.''

I wasn't consulted: Crossin

A senator since 1998, Senator Crossin was first woman elected to federal parliament from the NT.

In a statement released shortly after Ms Gillard's announcement, Senator Crossin said she was not consulted about the plan.

Senator Crossin said she was only made aware of the move to install Ms Peris as a Senate candidate last night.

"On Monday evening I was told by the Prime Minister of her intention to seek to endorse Nova Peris OAM as a candidate for the Senate in the Northern Territory from the national executive of the Australian Labor Party," the statement said.

"This action has been taken without consultation or negotiation with the NT branch of the ALP or my input as the long-serving federal Labor senator for the Northern Territory."

Senator Crossin said she had long-believed that preselection should be a matter for the branch.

"As an advocate and federal representative for the NT, I will not be making further comment until I have spoken with and consulted NT branch members and my colleagues."

Labor MP Andrew Leigh said that while rank and file preselections were the ideal system, he could understand Ms Gillard's frustration about the lack of indigenous representation in the Labor Party."I can understand the Prime Minister's determination to have an Indigenous representative in the House of Representatives," he told Fairfax Media. He said it was important the the Labor caucus looked like the "rest of Australia", adding that rank and file preselections had failed to preselect an indigenous candidate for 12 decades. Dr Leigh said that while his experiences with Senator Crossin had "all been "terrific", he had found himself turning to Liberal MP - and indigenous parliamentarian - Ken Wyatt for informal advice on indigenous issues. "I feel myself being pulled in two directions," he said of Tuesday's announcement

Labor 'took their eye off the mark' in NT

Ms Peris says that she was first approached to join the parliament about seven years ago, when she had young children.

"I wasn't ready then," she explained.

The former athlete outlined her passions for health, education, young people and essential services, and observed that the way the NT intervention was implemented "was wrong".

When asked why Labor had lost the support of indigenous voters in NT, Ms Peris said she believed that Labor "took their eye off the mark".

"There was a lot of work done by the CLP [Country Liberal Party] with regard to working hard in the bush and they got a lot of voters to vote, probably a lot of voters who never voted in their life," she said.

"Aboriginal people have been disappointed with government for a long time, and hence the intervention. I saw first hand that you can have the policies but if you don't have the right people implementing it's never going to work".

Ms Peris won gold with the Hockeyroos in the 1996 Atlanta Olympics, becoming the first Indigenous Australian to win Olympic gold.

After making the switch to athletics, she won gold in the 200 metres and 100 metres relay at the 1998 Kuala Lumpur Commonwealth Games and in 2000 made the semi finals of the 400 metres at the Sydney Olympics.

She was Young Australian of the Year in 1997.

Ms Peris, a mother of three and a grandmother, describes herself as an Aboriginal activist.

She was a "treaty ambassador" for the defunct Aboriginal and Torres Strait Islander Commission and has set up a charity, Peris Enterprises, through which she advocates an active lifestyle and health checks for indigenous children.

Meanwhile, former NT Chief Minister Paul Henderson has announced he will quit politics to put his family first.

Mr Henderson, who was chief minister for five years, has been on the backbench since losing the territory's election last year.

smh.com.au, with Stephanie Peatling, AAP