Two coal mines in Greater Sydney's catchment area are likely to be diverting millions of litres of water daily from reservoirs, an independent panel has found, prompting calls for a halt to further mining.

The panel's "initial report", released before Christmas, found it "plausible" the Dendrobium underground mine between the Avon and Cordeaux dams was diverting 3 million litres a day into its workings. The nearby Metropolitan mine's inflows were put at half a million litres, diverted from Woronora Reservoir.

Sydney Water's Cordeaux Dam near Wollongong , is losing water flows to a nearby underground coal mine. Credit:Nick Moir

The panel endorsed the Berejiklian government's approach of approving expansion – in the form of longwall mining – on an "incremental basis" that allowed for adjustments according to emerging "knowledge gaps".

The experts conceded that while understanding of impacts of mining in the Special Areas had "progressed substantially" over the past decade, remaining limits on monitoring and modelling means it remained "difficult" to confirm the mines had only "negligible consequences on surface water supplies" as claimed by miners.