Water recycling could be expanded in Sydney as the NSW government orders an urgent report into all options to boost the city’s supply amid the worsening drought.

Water Minister Melinda Pavey has asked the Department of Planning, Industry and Environment to investigate recycling blackwater from toilets for public spaces, backyards and gardens.

It comes as a cabinet-in-confidence document prepared by WaterNSW in May warned of the need to “start planning now” for the prospect of Sydney’s water storage falling below a critical point of 30 per cent capacity.

Water Minister Melinda Pavey alongside Premier Gladys Berejiklian as they announced last week that level two water restrictions had been fast-tracked for Sydney, the Illawarra region and the Blue Mountains. Credit:Christopher Pearce

The total water storage across greater Sydney is at 45.9 per cent, with dams depleting at a faster rate than during the "millennium drought", which saw levels plummet to 33.8 per cent in February 2007.