The city sent undercover investigators to two cigarette sellers on the Poospatuck reservation last week.
Officials say the investigators told the sellers they were buying cigarettes to sell in New York City, and purchased 60 cartons of untaxed smokes.
Native Americans are allowed to purchase untaxed cigarettes, but only for personal use and not for resale.
Mayor Bloomberg discussed the city's investigation into illegal cigarette sales saying its been documented the Poospatuck Reservation has sold more than 4 million cartons in 2010 and it's estimated the city and state lost nearly a billion dollars in tax revenue because of it.
"Let this be a quality of life warning," said Bloomberg.