The latest advice released by the Bureau of Meteorology at 5:01pm issued a cyclone warning for Maningrida to Cape Shield, including Nhulunbuy.
That means those areas can expect gale force winds within 24 hours.
A cyclone watch, which means gale force winds could be felt within 48 hours but not before 24 hours, was issued for Goulburn Island to Maningrida and Cape Shield to Port Roper, including Groote Eylandt.
The latest track map shows Tropical Cyclone Lam heading further west before turning south, compared to previous maps.
It shows the cyclone could make landfall near the Wessel group of island of the northern coast of Arnhem Land.
The advice said Tropical Cyclone Lam was estimated to be 230 kilometres east north-east of Nhulunbuy and 365 kilometres north-east of Alyangula.
Nhulunbuy is almost 700 kilometres east of Darwin on the remote north eastern tip of Arnhem Land.
Alyangula is the largest community of Groote Eylandt, which is in the Gulf of Carpentaria off the NT coast and south of Nhulunbuy.
'Communities should now be prepared': emergency services chief
NT Emergency Services director Andrew Warton said all affected communities should be prepared.
"By now in all the affected communities you should have a cyclone kit prepared, you should have a cyclone emergency plan, you should have discussed with your family and your friends what you will do if this cyclone affects your community," he said.
"It is absolutely essential at this point in time to monitor your radio and to use Secure NT as the sole source of truth for information that is being made available during the event."
He also said people should not head to emergency shelters until they had been told by officials to do so.
Chief Minister Adam Giles announced several schools in the region would be closed tomorrow.
"I've directed that the schools of Yirrkala School, Yirrkala School, Nhulunbuy High School, Nhulunbuy Primary School, Nhulunbuy Christian School and Baniyala Garrangali School are all to remain closed for tomorrow," he said.
Mr Giles signalled the Government was still taking advice on whether other schools would be closed and parents would be told as soon as possible whether more schools would close.
All non-key public servants in the affected area have also been told to stay home, Mr Giles said.
The bureau also had a flood watch out for areas of the Gulf coast, Mr Smith said.
"Obviously as the cyclone moves closer to the Gove Peninsula we would expect much heavier falls around that system," he said.
"We have a flood watch current for Arnhem Land and also the Gulf country coast.
"Certainly later in the week and towards to the weekend we could see some significant falls in catchments like the Roper and the McArthur where we could see some significant stream rises from the big rivers."
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