A top New South Wales water bureaucrat is facing misconduct allegations, after a damning independent report into allegations of water theft and corruption in the Murray-Darling Basin recommended fundamental reforms to the system.

Ken Matthews' interim report, which was commissioned by the State Government in the wake of explosive allegations aired by the ABC's Four Corners program, found the state's water compliance and enforcement "have been ineffectual and require significant and urgent improvement."

Key findings of the report are: The overall standard of NSW compliance and enforcement work has been poor

The overall standard of NSW compliance and enforcement work has been poor Arrangement for metering, monitoring and measurements of water extraction in the Barwon-Darling river system are below the standards required

Arrangement for metering, monitoring and measurements of water extraction in the Barwon-Darling river system are below the standards required Certain individual cases of alleged non-compliance have remained unresolved for far too long

Certain individual cases of alleged non-compliance have remained unresolved for far too long A lack of transparency in the system is undermining public confidence Source: Ken Matthews' interim report on alleged NSW water corruption

The Regional Water Minister Niall Blair described the report as "both confronting and significant for the Government".

"We now have a better understanding of what has happened, as well as strong recommendations to address the issues identified," Mr Blair said.

He said misconduct procedures have now been launched against top water bureaucrat Gavin Hanlon, who was secretly recorded promising to share internal government documents with irrigation lobbyists.

Mr Hanlon has been stood down while the procedures are completed.

'Systemic fix' required

Mr Matthews said the problems uncovered need a "systemic fix" and he's recommended the government implement a far-reaching reform package.

It includes:

Establishing a new NSW Natural Resources Access Regulator, which would operate at arm's length from the department and make decisions on the handling of alleged serious offences

Establishing a new NSW Natural Resources Access Regulator, which would operate at arm's length from the department and make decisions on the handling of alleged serious offences Introducing a "no-metering, no pumping" rule, to ensure all irrigators install pumps and scrap self-reporting mechanisms like log books

Introducing a "no-metering, no pumping" rule, to ensure all irrigators install pumps and scrap self-reporting mechanisms like log books Enabling the public to easily access all details of individual's water entitlements, licence conditions and water trading activities

Mr Matthews said the changes need to be implemented because "the industry's social licence to irrigate is at stake".

"Some of these reforms may not be welcomed by the current beneficiaries of an inadequate system," Mr Matthews said.

"However to rebuild public confidence will require more than incremental change. No change is not an option."

Mr Blair said he had already asked the Department to look into setting up an independent regulator and he would make it a top priority to ensure all large users in NSW install water meters within 12 months.

He said a taskforce had also been set up to investigate allegations of water theft and licence breaches.

"They have been asked to create briefs of evidence to enable decision making on whether prosecutions should be commenced," Mr Blair said.

Individual allegations remain 'unresolved'

National Irrigators Council chief executive Steve Whan welcomed the extensive scope of the report.

"Those recommendations that are about compliance really show that the NSW bureaucracy needs to step up its act to ensure that irrigators and communities have confidence about compliance activities," he said.

But Mr Whan said one of the big disappointments in the report was that it left allegations against individuals untested.

"It's very unfair, not only to the people who believe something wrong's happened but for people who've had allegations made against them, to have those just hanging there and unresolved," he said.