A film meant to promote reconciliation between black and white Australians has been condemned as racist by Aborigines and sparked a national debate on the conflict between artistic freedom and indigenous rights.

Australian Rules portrays a friendship between two boys – one white, one black – in a football team in a small country town. Critics say it uses racist language, reinforces stereotypes and is demeaning to Aboriginal women.

The film makers have also been attacked for dramatising a real-life incident in which two black teenagers were shot dead after breaking into a pub in Port Victoria, on South Australia's Yorke Peninsula, in 1977. The boys' families, who live in nearby Point Pearce, say they were horrified to discover that their personal tragedy had been fictionalised.

The controversy has raised questions about the "ownership" of indigenous stories and the need for artists to respect cultural sensitivities when handling Aboriginal issues. In Point Pearce, the community has complained that it was not adequately consulted.

With unprecedented numbers of Aboriginal-themed movies in the pipeline, the Australian Film Corporation is drawing up a "cultural protocol" to govern the use of indigenous material. But Paul Goldman, director of Australian Rules, said the proposed restrictions would deter white film makers from embarking on such projects.

The film, set for an August release, is based on the prize-winning novel, Deadly Unna?, by Phillip Gwynne, who grew up in Port Victoria and played football with a black boy from Point Pearce. Praised for its message of reconcilation, the book is a set text in schools.

Mr Gwynne, who co-wrote the film script, said Australian Rules was about his childhood. "I don't know if you can deny me the right to tell my story," he said. Attempts by the film makers to appease the Point Pearce community by holding a public meeting backfired. The producer, Mark Lazarus, said: "Emotions got so high that we were physically endangered."

More anger erupted when Australian Rules was screened at the Adelaide festival recently. David Wilson, spokesman for a coalition of groups opposed to the film, said: "It is causing a lot of pain and anger and grief in the Aboriginal community. We want it banned." Rita Angie, the aunt of one of the two teenagers killed, said of the book: "We like to keep the memories. We don't want them printed. It shouldn't have been written without our consent."