Dunderdale said Thursday that her province won't be forced into a benefits arrangement with the NunatuKavut, an Inuit group in southern Labrador that has laid claim to lands around parts of the Churchill River.
"Newfoundland and Labrador is not going to be bullied into any kind of an agreement with anybody in the country," she told a news conference at the Council of the Federation meetings in Halifax.
"We are not interested in working in any way to extinguish the rights of any group within our province ... but there's a protocol that's followed and a process that's followed."
Dunderdale said the group has identified itself as Inuit descendents, but doesn't have status and should be talking to the federal government about the claim. She said she would be willing to enter into a land claim agreement if they are granted status.
The premier said her government has deals with the Innu and the Inuit but not the NunatuKavut.
NunatuKavut community council president Todd Russell has said Dunderdale is mistaken if she believes she can proceed with the project without his group's approval.
In a phone interview Thursday, Russell said the group isn't trying to bully the government, adding that their priority is getting to the negotiating table.
"I would not call our determination, our assertiveness, our clarity about who we are, what rights we have to be a matter of bullying," Russell said.
"This is just us wanting clarity on our position and the options we have left."
He said Dunderdale's position on the NunatuKavut's status was being used as a "convenient excuse to do nothing ... or to make it somebody else's responsibility."
"The provincial government has legal obligations and moral and ethical responsibilities to us as aboriginal people.
The NunatuKavut claim more than 6,000 members.
Under the conditions of a term sheet announced in 2010 to develop the project, Newfoundland and Labrador's Crown energy company would spend $2.9 billion to build a power generating facility at Muskrat Falls capable of producing 824 megawatts of electricity.
A transmission link from Labrador to Newfoundland would cost $2.1 billion, $600 million of which would be provided by Nova Scotia-based private utility Emera (TSX:EMA). It would include a 30-kilometre subsea connection across the Strait of Belle Isle.
Emera would also fund a 180-km subsea link between Cape Ray, N.L., to Lingan, N.S., at a cost of $1.2 billion.
Dunderdale has recently warned, however, that all costs associated with the development are expected to rise.
If it proceeds, the project would provide Nova Scotia with 170 megawatts of energy annually — about eight to 10 per cent of that province's total power needs — for 35 years.
Proponents say they hope to have energy flowing by 2018.