Social Development Minister Nelson McCausland was motivated by sectarianism in seeking to restrict expansion of north Belfast's Catholic population in plans for regeneration of a former Army base, the High Court heard.
Mr McCausland tried to block housing development on the former Girdwood barracks site for improper political reasons and to counter the decline of Protestants in the area, it was alleged.
The claims were made as a nationalist single mother who has been on the social housing waiting list for 12 years won legal permission to mount a challenge to the scheme announced last May.
Her lawyers want the new plan quashed and declared unlawful for allegedly breaching equality guidelines.
A scheme announced under former SDLP Social Development Minister Alex Attwood in 2010 was to have involved building 200 homes on the site.
But after Mr McCausland took office revised proposals were announced which would see sport and educational facilities in the area. Housing numbers were also to be reduced, with the court hearing that only 50 may be built.
Launching the judicial review challenge, Barry Macdonald QC said: "The simple reason for the decision was he (Mr McCausland) didn't want 200 Catholic families moving into this area.
"The minister's decision was motivated by improper collateral purposes: a restriction of the expansion of the Catholic population in north Belfast and to counter the decline of the Protestant population."
Donal Lunny, responding for the minister, rejected the allegations of improper motivation.
He told the court the May 2012 decision was in line with the original masterplan five years previously, and that it was his SDLP predecessors who strayed from the blueprint.
"It was a perfectly proper act to stop what was considered to be out of step with the agreed proposals and reinstate something in keeping with them," he said.
A lawyer for Belfast City Council, which is to have responsibility for a community hub at the centre of the proposals, emphasised the cross-party support from north Belfast politicians at the time of the announcement.
However, Mr Justice Treacy granted leave to seek a judicial review after ruling that an arguable case had been established.
A full two-day hearing was listed for June.
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The new masterplan, including separate blocks of new housing in traditionally Protestant and Catholic areas, was unveiled with representatives from Sinn Fein, the DUP and SDLP posing at the site. At the time cross-community support for the scheme was stressed. QC Mr Macdonald pointed out only Mr McCausland and Nigel Dodds were "grinning like Cheshire cats" in the photographs.