Nathan Guy expects new funding will provide a reliable source of water for dry North Canterbury.

Government funding of $520,000 will go to the Hurunui Water Project to irrigate farmland around Hawarden in North Canterbury.

Primary Industries Minister Nathan Guy said the new funding would provide a reliable source of water in a dry part of the country.

He said the scheme had "major potential" to increase agricultural production, grow exports and create jobs.

"Once complete the full scheme has the potential to irrigate 35,000 hectares of land. Around 70 per cent of that land will be used for sheep and beef production, with the other 30 per cent being for arable, dairy and other uses."

The funding comes from the Ministry for Primary Industries' (MPI) Irrigation Acceleration Fund and will go towards refining the scheme layout and scoping the work programme.

Guy said the funding would help irrigators deliver on stage one of the project to irrigate 10,000-15,000 hectares.

"This area has been in serious drought for nearly 18 months now and the lack of a reliable water supply has been a major burden."

MPI supports irrigation proposals with matched funding so they can reach the investment-ready stage. To gain funding schemes must prove they have commercial backing and can demonstrate strong community support.

Guy said the Government was a strong supporter of irrigation and water storage and had allocated $120 million to Crown Irrigation Investments Ltd over the past three years with another $25 million going towards the accelerator fund in last year's Budget.

Of the 722,000 hectares of land under irrigation in 2012 about 115,300 hectares had received some form of Crown funding.

Guy said the Government was on track to meet its goal of one million irrigated hectares by 2025 with 276,500ha of land with Crown assisted irrigation schemes in progress.

Irrigation is estimated to contribute $2.2 billion to the national economy.