An Indigenous mental health service for children and young people at James Fletcher Hospital is set to lose its home base, with staff to be split up.
Hunter New England Health confirmed the proposed changes to the service, named Wiyiliin Ta.
The Aboriginal service treats youngsters aged two to 18, a senior health professional source said.
The source said Wiyiliin Ta was "treating up to 300 young people a year".
And the service had been "operating since 1997 and in Tara Lodge for almost 10 years".
"It started because not many Aboriginal kids were accessing the public mental health service due to racism and other barriers," the person with knowledge of the service said.
Tara Lodge, in Watt Street in Newcastle, had up to 10 staff, including Aboriginal psychologists, social workers, a doctor and non-Aboriginal workers.
"There will be a change of location for clinicians," a Hunter New England Health letter to the HSU (Health Services Union) said.
The letter said the clinicians would be moved to the Mater Mental Health Centre at Waratah or Hunter Valley Mental Health Service at Maitland.
They may also move to CAMHS (Child and Adolescent Mental Health Services) community teams in Newcastle or Charlestown.
"It is acknowledged that this will affect some existing roles and a small number of permanent staff," the letter said.
The source said Tara Lodge was "an Aboriginal meeting place for the families of kids and young people with mental health difficulties".
"They're doing a significant restructure of the service. The clinicians working there are worried it will result in increased negative outcomes for local communities."
Suicide rates among Indigenous people aged 0-24 are more than three times as high as non-Indigenous Australians.
The service helped "young people with moderate to severe mental health difficulties, with suicidal ideation or complex presentations including self-harming behaviour".
"It had developed a cultural model of care for young ones," the source said.
A Hunter New England Health spokesperson said "the Wiyiliin Ta mental health service is not closing".
"It will continue to provide specialised, culturally safe mental health care to local Aboriginal communities across the Hunter," the spokesperson said.
"To strengthen the service, a new Aboriginal operational team leader is being appointed."
The spokesperson said this would "align the service with the broader Yimamulinbinkaan Aboriginal Mental Health Service".
"The Wiyiliin Ta name, identity and culturally safe model of care will remain, as will the expertise of the Aboriginal child and adolescent mental health clinicians.
"There will be no disruptions to consumers receiving care by the Wiyiliin Ta service while these changes are implemented."
But the source said the service had "ceased accepting referrals, pending the outcome of the review".
"Aboriginal young people are being advised the service is not accepting any new referrals.
"Sadly they haven't consulted any of the local Aboriginal organisations and impacted communities about their planned change."
The spokesperson said it would "continue to consult with the service, its clinicians, consumers and our Aboriginal community partners".
