Allegations of water theft and meter tampering in New South Wales aired by the ABC's Four Corners program have prompted the Commonwealth Auditor-General to expand an investigation into the Federal Department of Agriculture and Water Resources.

Opposition water spokesperson Tony Burke wrote to Auditor-General Grant Hehir earlier this week, requesting he investigate the allegations aired by the program on Monday night.

Four Corners found that billions of litres of environmental water purchased by taxpayers to save Australia's inland rivers were instead being harvested by some NSW irrigators to boost cotton-growing operations.

Mr Hehir responded, saying the Australian National Audit Office was already auditing the effectiveness of monitoring and payment arrangements under National Partnership Agreements, which facilitate the transfer of federal funds to state governments for specific purposes.

"I have decided to expand the scope of this current audit to include how the Department of Agriculture and Water Resources is monitoring the performance of New South Wales (NSW) under the National Partnership Agreement on Implementing Water Reform in the Murray-Darling Basin relevant to the protection and use of environmental water," he wrote.

"I will consider tabling a separate report relating to the NSW issue later this year."

Four Corners also revealed how top NSW water bureaucrat Gavin Hanlon offered to confidentially share internal government information with irrigation lobbyists to assist them in lobbying against the Murray-Darling Basin Plan.

Both Mr Hanlon and former NSW water minister Kevin Humphries have since been referred to ICAC over their relationship with irrigation lobbyists.

Federal Minister for Agriculture and Water Resources Barnaby Joyce yesterday accused the ABC's Four Corners program of taking part in a campaign to take more water away from irrigators, claiming it would shut down regional towns.

The comments were quickly labelled "incredibly foolish" by South Australian senator Nick Xenophon, who said the water portfolio should be split from agriculture.