The Scottish Secretary told the PA news agency he has spoken to Orkney Islands council leader James Stockan who had expressed his discontent with the local government funding allocation.
Mr Stockan’s council motion instructing local authority officers to publish a report on different options available to the islands, which included exploring previous “Nordic connections”, was passed on Tuesday.
However, he insisted during the motion’s debate that the discussion was “not about joining Norway”.
He told councillors, however, that both the UK and Scottish Government’s treatment of Orkney amounted to “discrimination in the funding settlements”, with the island receiving less funding per head than Shetland and the Western Isles.
He also added that the area’s ageing ferry fleet was starting to fail.
But speaking after he attended the King’s coronation ceremony in St Giles’ Cathedral, Edinburgh, the Scottish Secretary said the UK Government was providing adequate support through the Islands Growth Deal.
The 10-year deal investment sees projects supported across the three island regions with the intention of driving economic growth, with the UK and Scottish Governments each investing £50 million each and attracting further investment of up to £293m in match funding.
But he said the Scottish Government must do more through its local government funding allocations
I think what we have to do is they need to sit down with the Scottish Government and look at a fair funding package
He said: “The UK Government is doing – we have the islands deal and we’ve put money into that and that’s split three ways between Orkney, Shetland and the Western Isles and we have the levelling up money going in.
“I’ve spoken to the Orkney council leader and they are upset with the local government funding package from the Scottish Government and they are upset that the Scottish Government aren’t helping them to renew their ferries.
“It’s right that they should look at other funding arrangements, I completely understand that because they’ve got capital items to replace like 40 to 50-year-old ferries and that is a real issue.”
“I think what we have to do is they need to sit down with the Scottish Government and look at a fair funding package,” he added.
Mr Stockan told councillors prior to the vote on alternative governance that options could also include getting money “directly from the Treasury in London”.
He said both governments had “restricted” and “held down” Orkney councillors when trying to negotiate improved funding.
Local Government Empowerment minister and SNP MSP Joe FitzPatrick said: “The best constitutional circumstance for all of Scotland to develop a strong relationship with our Nordic neighbours is with independence.
“We are committed to build a stronger relationship with local government, with mutual trust and respect at its core.
“Scottish Ministers look forward to working closely with Orkney Islands Council and other local partners to develop alternative governance arrangements on the Orkney islands, which can demonstrate strong potential to improve outcomes for local people.
“The joint Local Governance Review with Cosla was established to consider how power and resources should be shared between national and local government and with communities.
“Together with Cosla, we have also launched the Verity House Agreement which is based on the idea that councils know best how to serve the people in their communities.
“This is just the start of the process, and we look forward to working further with Cosla and councils in the interests of all the people of Scotland.”