It will display the visual culture of 5,000 years of historical Chinese art with long term artefact loans from the museum's counterpart in Beijing.
Speaking at the launch of the public consultation for the project, she said there is nothing unusual in keeping the discussions and preparation work for the new museum confidential until the signing of the Memorandum of Understanding (MOU) with Beijing's Palace Museum last month.
For China's ruling Communist Party, the 1989 demonstrations that clogged Tiananmen Square in Beijing and spread to other cities remain taboo.
Others say the public may have appreciated the museum if it had been discussed transparently.
He called the lack of public consultation over whether the museum should go ahead a "dictatorial approach".
He did not oppose the idea of a Palace Museum, but said it did not have to be at the West Kowloon Cultural District. It will replace plans for a mega performance venue.
The museum, which will showcase the treasures of imperial China, will be funded by the Hong Kong Jockey Club Charities Trust.
"The Hong Kong Palace Museum is not only in line with the vision of the West Kowloon Cultural District to be the cultural hub of Hong Kong, but is also highly complementary to its core arts and cultural facilities under construction or planning", said Carrie Lam, director of the Palace Museum.
Critics have accused her of using the museum project to help her bid for the city's top post.
"I know that today's society is full of mistrust, but for this issue, we really do not have any selfish motives and private interests", she told reporters Tuesday. Since then, she has faced a lot of criticism, with people asking why there was no prior public consultation on the plan. The board already approved plans for the museum in November.
City residents who spoke with AFP said they did not support the project.
"By building something like this they just want to merge us together", real estate agent Kong Lung, 27, said, adding he felt it was an example of the "mainlandisation" of Hong Kong that had taken place since the city was handed back to China by Britain in 1997.
Others said they felt the museum plan was a political move.
"When we look at this Palace Museum, what it reminds us of is not what is inside, but what happened outside in 1989, when tanks rolled into Tiananmen Square, when the People's Liberation Army fired on its own people", said Lee, a former legislator and organizer of the annual commemoration vigil.
"I think those responsible for it are trying to ingratiate themselves with those in Beijing", he added.