Strict new limits will be imposed on a coal mine west of Sydney which has caused pollution deep within the Blue Mountains World Heritage Area.

The News South Wales Environment Protection Authority (EPA) has revised a licence for the Clarence Colliery near Lithgow in a bid to protect the Wollangambe River.

As part of the changes, the EPA has imposed a legally binding Pollution Reduction Program which sets stringent limits on 13 metals, including zinc and metal.

The EPA has also advised the mine's owner Centennial Coal that the salinity levels of its mine water discharges must be kept below 100 EC.

It comes after researchers discovered pollution 22 kilometres downstream from the mine site, and that insect numbers had dropped by 90 per cent in parts.

The EPA has been taking legal action against the company over discharging of coal fines into the Wollangambe River in 2015.

Revised limit paves way for sustainable mining, says expert

Western Sydney University environmental science lecturer, Dr Ian Wright, said the revised licence was a massive breakthrough.

"This action is a fantastic step. To me it's a roadmap to recovery for the river," Dr Wright said.

"We will have to see in a way if the river ecosystem does clean up, but my feeling is if this can delivered, this will be far enough.

"I'm certainly not against coal mining at all. What I'm against is poorly-treated waste of any form causing problems for downstream."

The mine has been operating since 1979 and is one of the Lithgow region's biggest employers, with a workforce of 240 people.

Dr Wright said the move to reduce pollution would strike an important balance between the region's environment and economy.

"I hope for the central west and the employment it brings that this will help make coal mining a bit more sustainable," he said.

An EPA officer and bushwalkers inspect the Wollangambe River after a wall collapse at Clarence Colliery in July 2015. ( ABC News: Gavin Coote )

Environmentalists hail 'strong regulatory move'

The Colong Foundation director Keith Muir said today marked an important milestone for protecting the ecologically-significant river.

"Usually you grizzle about things in the media and this is actually a very good news story that an entire river will be returned to a pristine state," Mr Muir said.

"It also marks a strengthening attitude towards polluters by the EPA in relation to pristine environments.

"It is a strong regulatory move, supporting the industry do-gooders that want to clean up, and we welcome the decisions by Centennial Coal and the EPA to clean up the Wollangambe River."

The EPA's regional director Gary Whytcross said he hoped the river would begin to recover within months.

"We'll be looking at the critters that are in river, so we will be expecting, probably over the rest of this year to start to see the numbers of critters (increase)," Mr Whytcross said.

"So we'll be monitoring that and looking at the recovery but our expectation is that hopefully that will happen fairly quickly."

Centennial Coal said it welcomed the finalisation of the review of licence.

It said the review process included extensive aquatic ecology, ecotoxicology and macroinvertebrate investigations in consultation with agencies and community stakeholders.