Saskatchewan's government is dropping a court challenge of the federal equalization program, saying the case has been "the elephant in the room" in talks with Ottawa.

The government will withdraw a reference the previous NDP administration made to the provincial Court of Appeal, Saskatchewan Party Justice Minister Don Morgan said Thursday.

Morgan said the challenge has been hampering federal-provincial negotiations.

"When you're litigating you can't sit down and say, `well let's jointly fund a bridge, let's set some priorities here,' " Morgan told The Canadian Press.

"It's, `well, we'll wait and see what happens with the litigation.' The litigation is always the elephant in the room when you're trying to negotiate something. So we'd just as soon try and not have that there at all."

"Nobody's held out threats or said we're demanding you do this," added Morgan.

The challenge was launched last fall by then-premier Lorne Calvert, who argued that Saskatchewan was being shortchanged by the way the formula treats natural resource revenues, such as those from oil and gas.

Calvert wanted the court to consider two questions: whether the act governing equalization payments denies Saskatchewan ownership of non-renewable resources and interferes with its ability to manage those resources.

The second question centred on whether the equalization program, as amended by the Conservatives in the last federal budget, violates the Constitution.

The Tories had promised to fix the program during the last election campaign, but Saskatchewan was unhappy with the changes.

On Thursday, the Saskatchewan New Democrats, now in opposition, blasted the decision to drop the challenge.

Finance critic Harry Van Mulligen noted the Saskatchewan Party, an alliance of former Tories and Liberals formed in the late 1990s, had supported the idea of a court challenge while it was in Opposition.

However, the party, which has several federal Conservative ties, has been trying to foster a warmer relationship with Ottawa since taking office last November.

There have also been suggestions from Prime Minister Stephen Harper that Saskatchewan drop the case. Premier Brad Wall has said Harper "made it clear" in a meeting in January that the legal challenge should be withdrawn. Wall said he took it under advisement.

"This should keep lots of positive relations within the family," said Van Mulligen. "But again, this is not a question of political kinship.

"This is an important principle for the people of Saskatchewan… and also many, many dollars for the people of Saskatchewan and ought not to be trumped by political affinity," said Van Mulligen.

At stake is about $800 million in federal transfers annually, according to provincial calculations.

But Morgan said Saskatchewan is on an economic roll and does not want to go "cap in hand" to Ottawa looking for a handout.

The federal government is also doing its share for Saskatchewan, said Morgan, pointing to $240 million allotted in the budget to help the province build a carbon-capture system for coal plants.

"We're getting very large amounts of money from the federal government and we don't want a litigation to be an impediment," said Morgan.

"If we get the money, that's all my concern is. The label that's on it to me doesn't make a lot of difference. As a province we want to maximize the amount of money that's coming here — it's coming, let's just take it."