Greater Sydney's drinking water could be at risk if a proposal to expand coal mining operations underneath one of the state's most valuable catchments is approved.

Wollongong Coal wants to push its operations further into the Lake Cataract catchment - one of the key water resources for the Illawarra and Macarthur, and a back up reservoir for Sydney - but government scientists have raised serious concerns.

The region has been mined for more than 100 years.

The Independent Expert Scientific Committee prepared a report at the request of the Federal Government, which details a number of issues with the company's proposal.

"It is considered very likely that there will be significant impacts to water resources," the IESC report said.

It identified "shortcomings" in the water modelling done by Wollongong Coal, and said the mine's layout should be altered so surrounding swamps are not affected.

"The final risk assessment underestimated the overall risk to these swamps," the IESC report said.

Local environmental scientist Dr Ann Young said swamps acted as giant sponges in the catchment.

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"[They are] very important in drought conditions," Dr Young said.

"This is the place which nearly always is supplying to water to the dam and, of course, the swamps are nearly always the source of that in dry times."

Wollongong Coal aims to complete two phases of expansion. It wants to mine 4.7 million tonnes of coal over five years as part of its 'Underground Expansion Project' that is currently before the New South Wales Department of Planning.

But while waiting for approval, it says it needs to start mining 400 metres of Longwall 6 in order to keep the mine afloat.

The Department of Planning and Environment recommended that interim expansion go ahead, despite an objection from the Sydney Catchment Authority.

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In its assessment, the DPE said the design of the expansion provided a significant buffer from the stored waters of the reservoir.

"Wollongong Coal has adopted a very conservative mine design in order to substantially limit the potential for unpredicted environmental impacts on key surface features," the assessment report said.

"The Department considers that it is unlikely there would be any significant subsidence-related impacts on most nearby key surface features, including Cataract Reservoir."

The IESC report acknowledged the impacts of the smaller expansion were likely to be minor for the reservoir itself, but warned about the combined impacts of the overall mining to the dam.

"The greatest risks of impacts to water are the cumulative impacts from Longwall 6, the Russell Vale Expansion and the additional proposed mining at Wonga West," its advice said.

"The project assessment documentation is not adequate to accurately assess these cumulative impacts."

Revenue should not cost catchment health: expert

In its response to the IESC, the company said significant modifications to the mine plan had already been made to minimise impacts to streams and upland swamps.

Environmental health expert Associate Professor Melissa Haswell from the University of New South Wales said revenue should not come at the cost of catchment health.

"With longwall mining the impacts that we see, they're irreversible," Associate Professor Haswell said.

"Once we've cracked a rivulet, once we've cracked that swamp, we can't get it back."

In a statement to the ABC, Wollongong Coal said it noted the IESC's advice, but added this was the first time the committee had examined these swamps.

"Wollongong Coal has been undertaking increasingly intensive study of the Upland Swamps, in its proposed mining areas, for over five years which has provided a strong understanding of the local swamp characteristics including soil profile, surface and groundwater hydrology, ecology and habitat values," the statement said.

"A large number of the issues and potential impacts raised by the IESC were raised by, and subsequently resolved with NSW Government regulators as part of the NSW planning process."

The future of the smaller expansion is in the hands of the New South Wales Planning Assessment Commission, which is due to hold its first public meetings soon.