Tropical Cyclone Megan formed over the Gulf of Carpentaria east of Groote Eylandt on Saturday afternoon and was expected to move southeast, the Bureau of Meteorology said.
Wind gusts to 120km/h were recorded at the centre of the category one system on Saturday.
The bureau expected the cyclone to strengthen to a category two system overnight and into category three by Sunday evening.
Residents of Groote Eylandt in the NT have copped high winds and heavy rain as a cyclone formed. (Stephanie Flack/AAP PHOTOS)
The Alyangula community on Groote Eylandt and people across the Queensland border, including in the town of Borroloola but not Ngukkur, have been urged to prepare their properties and enact household plans.
Sustained winds above 125km/h could intensify on Sunday and could compound the effects of heavy rainfall already expected in the Top End over the weekend.
The heaviest falls are expected on coastal and island locations on Saturday, before reaching further inland into the Carpentaria district on Sunday.
"While it (the cyclone) is most likely to cross the coast on Monday it will be slow moving, making both the timing of landfall and intensity at that time quite uncertain," the bureau said.
The weather event will then weaken once it makes landfall and is likely to move west through the NT as a tropical low, bringing heavy winds and rain.
A severe weather warning for heavy rainfall has also been issued for people in parts of the Arnhem district, north of the cyclone's watch zone.
It's the second tropical cyclone to hit the region in as many months.
Last month, ex-tropical Cyclone Lincoln crossed the territory's coast in the southern Gulf of Carpentaria as a category 1, bringing high winds and heavy rainfall.
It triggered flood watches and warnings in northwest Queensland, the NT and northern WA before moving offshore.
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