Murray-Darling Basin Authority chairman Mike Taylor has resigned just two months after the authority's release of the controversial plan to restore the health of the ailing river system.

In a statement released this morning, Mr Taylor confirmed his resignation and urged the Federal Government to "reconsider the next phase" of the plan.

The authority has been under the spotlight since early October, when it released its draft plan outlining substantial water cuts to the ailing river system.

The draft plan calls for between 3,000 and 4,000 gigalitres be returned to the system to ensure the sustainability of the basin.

However the draft plan's release prompted angry scenes at community meetings throughout the basin, with some townships concerned that the social and economic impact of the proposed cuts was being ignored.

The authority must follow the provisions of the Water Act in formulating its plan and there had been confusion over how much weight the authority had to give to social and economic impacts when considering environmental needs.

In today's statement, Mr Taylor said he had written to Water Minister Tony Burke about new advice the authority has received about balancing the three areas.

He says the advice received by the authority confirms it "cannot compromise the minimum level of water required to restore the system's environment on social or economic grounds".

Mr Taylor also says balancing the requirements of the Water Act against the social and economic impact on communities will be "a significant challenge".

"The chair, Michael Taylor, stated that a sustainable plan for the Basin would require far more than a decision by the authority on how much water should be transferred from human uses to the environment," the statement says.

Mr Taylor says a successful basin plan needs the Commonwealth and states to work together with relevant stakeholder groups, and while the authority has an important part to play it cannot perform the task alone.

He warns any delay in the further development of the plan will cause uncertainty in rural and regional areas.

"It is clear that the work required over the next 12 months is extensive and crucial to the adoption and implementation of a credible basin plan, capable of full implementation," he said.

"While I strongly support that outcome, I believe it is time for the Government to reconsider the next phase."

Speaking this morning, Prime Minister Julia Gillard thanked Mr Taylor for his work and said the Government was committed to "optimising" the needs of communities, farmers and the environment.

"We've got one chance to get water reform right. Now we need to get it done," she said.

Mr Taylor will leave his position at the end of January.