OTTAWA - First Nations in the James Bay region of Northern Ontario say their housing crisis is deepening despite the federal government's recent response to Attawapiskat.

In a statement issued Thursday, the troubled Attawapiskat First Nation said it won't be able to make its January payroll unless the federal government shows more flexibility.

Many families are still living in tents and substandard shelters there. And now, essential services such as education are at risk because the $1.5 million earmarked for them has been placed in the hands of a government-appointed third party, according to a statement from the regional Mushkegowuk Council.

Neighboring Cree communities along James Bay are crying out for emergency help as well.

"With temperatures now in the minus 30s and 40s, the chiefs are now calling on the federal and provincial governments to take immediate action on the housing crisis in Fort Albany and Kashechewan as well," the statement said.

The federal government contests almost every point in the council's statement.

Aboriginal Affairs Minister John Duncan said the third-party manager appointed by Ottawa to run Attawapiskat's finances will make sure all essential services are running smoothly and the bills are paid -- as soon as the band starts co-operating with him and giving him the information he needs.

"As was addressed in a letter on January 4, 2012 to Chief (Theresa) Spence, the third-party manager is ready to issue payroll cheques for essential services, such as teachers, and will do so as soon as he is provided with the necessary information from the chief and council," Duncan said in an emailed statement.

He said families no longer need to live in tents because the local healing lodge has been renovated. It now has running water, bathrooms and heat, and is ready to accept families who feel they need better shelter.

"We urge families that haven't done so to move into the vacant living space in the healing lodge as soon as possible," Duncan said.

In other words, if they're still living in tents, it's their choice.

The new modular housing is on its way, with four of the 22 units already waiting in Moosonee, Ont., and another four due there by Friday, government officials said. They will be sent to Attawapiskat as soon as the winter road between Moosonee and the reserve is frozen solid.

Plus, work is underway to improve conditions at a large construction trailer that houses about 100 people, they added.

As for Fort Albany and Kashechewan, Duncan said he has been in contact with the chiefs and has extended $3.25 million for housing to Kashechewan in response to recent pleas.

The conflict between the government and the First Nations has degenerated and is probably in need of a mediator, said Charlie Angus, the NDP MP whose riding includes the James Bay reserves and who has advocated tirelessly for more federal services.

"Obviously there's a stand-off," he said in an interview. "I think you need someone to come in to do some mediation."

He said local Cree leaders are considering that option right now.

Some families are reluctant to move into the retrofitted healing centre because it has heating problems and because it is six kilometres outside of town, Angus explained.

The bigger issue behind the clash is the role of the third-party manager. Band leaders were led to believe that Ottawa only wanted him to take care of financing for housing, and would not take over all the band's financing, Angus said.

But the federal government contends that has never been the case, and that the third-party manager has a broader mandate to run the band's finances until the health and safety of the community are on the right track.

Spence has taken the dispute to court, asking for removal of the third-party manager. But the two sides are also trying to figure out how to move forward in a way that would allow the band at least some control over its finances.

The dispute, and conditions in the reserves, are being closely studied by the United Nations' special rapporteur on the rights of indigenous people, James Anaya.

On Thursday, Liberal aboriginal affairs critic Carolyn Bennett asked Anaya to pay specific attention to the numerous reports from the federal auditor general, as well as internal government audits and evaluations, that raise the alarm about First Nations housing.

"These reports confirm that the emergency situation in Attawapiskat is not an isolated incident, but rather the product of systemic failures of government policies and programs," Bennett wrote to Anaya.

Bennett also noted that audits and evaluations have discredited the third-party intervention system as ineffective and not cost efficient.