A government decision to divert the water allocation from a mothballed power station to the Sydney catchment instead of nearby Bathurst has inflamed tensions in the thirsty town, where the mayor has been blamed for not lobbying hard enough for water security and irrigators accused of taking more than their share.

Bathurst's Chifley Dam is down to 39 per cent of its capacity - the lowest level since the wall was raised in 2003 - and slipping by a further 1 per cent every week. Bathurst Regional Council wanted to buy Energy Australia's annual water allocation for Oberon Dam, which supplied Wallerawang Power Station until it closed in 2014, and has since been used by Sydney Water.

Bathurst Regional Council wanted to buy Energy Australia's annual water allocation for Oberon Dam. Credit:Wolter Peeters

After the state government knocked back this proposal last month, the town moved to extreme water restrictions and local irrigators agreed to take just 20 per cent of their water allocation.

WaterNSW systems operations manager Adrian Langdon said Oberon Dam supplied Lithgow, Oberon, storages for the Blue Mountains and Energy Australia, which still operates Mt Piper Power Station. If three gigalitres of water were to be diverted to Bathurst as its council proposed, there would be additional transmission losses of up to 1.5 gigalitres and the dam would be left with just eight gigalitres, he said.