"Only Indians lived there", implied that Native Americans were not people-in response, the publisher then changed "people" to "settlers".
The ALSC had been considering whether it should strip Wilder's name from the award since February and announced at the time that the author's legacy "may no longer be consistent with the intention of the award named for her".
"Yet perceptions matter, along with the very real pain associated with her works for some, and year after year ALSC gives the impression of upholding Wilder's works through an award that bears her name".
Critics have highlighted anti-native and anti-black sentiments in Wilder's work for decades, although her books are still published, read and loved by many.
Wilder is famed for her "Little House on the Prairie" series, which was based on her childhood in a settler family during the late 1800s.
"Although Wilder's work holds a significant place in the history of children's literature and continues to be read today, ALSC has had to grapple with the inconsistency between Wilder's legacy and its core values of inclusiveness, integrity and respect, and responsiveness through an award that bears Wilder's name", the ALA said.
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Little House on the Prairie was first published in 1932.
However, some Wilder scholars say the author's work shouldn't be downplayed. Wilder herself called the word choice a "stupid blunder" in 1952, saying "Of course Indians are people and I did not mean to imply they were not".
An editor at Harper's made a decision to change the word "people" to "settlers" in 1953, though that did little to silence critics who characterized such wording as racist, according to The Washington Post.
In a March Washington Post column, Caroline Fraser, who wrote Prairie Fires: The American Dreams of Laura Ingalls Wilder, argued for continuing support and reading of the Little House books. At the forefront of the argument is her handling of black and Native American characters, both in namecalling and characterization. She wrote that they smelled of skunk, had hard, glittering eyes and came constantly to the little house demanding food and tobacco.
The American Library Association knows the books are deeply meaningful to many readers, and they said they are not calling for censorship-just an understanding of the times reflected in the stories.