The 7,112 acres - or 11 square miles - of Crow Creek Sioux ancestral land in central South Dakota was auctioned off on Thursday by the US Internal Revenue Service to help pay off more than $3.1 million (£1.9 million) in unpaid taxes, penalties and interest.
The land, part of the tribe's original reservation established in an 1868 treaty, was originally held by the federal government in a trust for the tribe.
However, it was later divided up between individual tribal members, some of whom sold it to non-Indians, putting it outside the tribe's legal jurisdiction.
The tribe bought it back in 1998 but claims the US Bureau of Indian Affairs failed to put the land back into trust, which would have protected it.
The bleak, flat reservation land is particularly valuable to the tribe, one of the poorest communities in the US, because it has been designated as suitable for the development of wind power.
Buffalo County, which encompasses the Crow Creek reservation, is consistently listed by the US Census Bureau as one of the poorest counties in America.
While the tribe's lawyers have launched a legal appeal, some Indians said they would be erecting teepees on the disputed land in protest.
Lawyers and academics believe it is the first instance of the IRS seizing tribal lands in this way.
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