It's the new battle in the bush — the bottled water wars.

On one side is Australia's $800-million-a-year bottled water industry and its suppliers, on the other, rural residents who fear their most precious resource, groundwater, is being squandered.

Larry Karlos next to his water extraction pump and tanks. ( ABC News: Dominique Schwartz )

"It's dividing the local community," said Larry Karlos, one of half a dozen water extractors in the Tweed Valley in northern New South Wales.

He's been pumping water from an aquifer beneath his property for 16 years.

But his recent bid to increase the amount he sells to bottling companies has ignited local opposition.

Fourth-generation farmer Patrick O'Brien fears his children's future is being jeopardised for the profit of the water industry.

"If they don't stop this type of thing then, you know, what's going to be left?" he told 7.30.

"What's going to left for future generations? No-one was really worried when they were trucking the water out in small amounts, but then they want more, they want more trips, they want bigger trucks."

Does extraction affect groundwater?

Patrick O'Brien say the water flow in the Bilambil Creek is stopping more and more. ( ABC News: Dominique Schwartz )

Without access to a town water supply, locals in the Bilambil Valley rely on water from the creek.

Mr O'Brien is concerned water extraction is affecting that supply.

"We never used to see any problems with it," he said.

"Lately, in the last few years, it's stopping more and more constantly throughout the year."

Mr Karlos rejects that link.

"The water we're taking out has no bearing on localised water, groundwater or creek water, which is what the farmers are using," he said.

A hydrology report he commissioned in 2016 found his water extraction was "not considered likely" to have an impact on local creeks.

But Ian Acworth, an Emeritus Professor with NSW University who has researched ground water for the past three decades, said on the scant data available it was quite possible the two water systems were interconnected.

"It requires more investigation," he told 7.30.

Water mining v licenced extraction

Jeremy Tager of the Tweed Water Alliance says water extraction has become a lawless industry. ( ABC News: Dominique Schwartz )

The Tweed Water Alliance (TWA), a group of concerned residents, is campaigning against what it calls "water mining".

"It's not just the extraction of water, but concerns that this has become a lawless industry, an industry which pays no attention to their conditions of approval," TWA member Jeremy Tager said.

"They breach hours of operation and size of truck. "It appears they also take water they're not entitled to — it's water theft."

Mr Karlos denied such claims.

"That is an untrue comment. I've never stolen water in my life," he said.

"The water that we're selling does belong to me because I have a licence to sell 60 megalitres a year," he said.

But it's complicated.

Larry Karlos (r), with his son Matthew (l) thinks the decision to restrict his water output is political. ( ABC News: Dominique Schwartz )

The Karlos operation does have a licence from NSW Water to extract a maximum of 60 million litres of water a year — enough to fill 24 Olympic swimming pools.

However, to transport the water it needs development approval from the Tweed Shire Council.

By limiting the number, size and hours of operation of water tankers, the Greens-led council has effectively halved the amount of water the Karlos operation is allowed to sell.

"It's a political thing and there's no sense as to why we have the restrictions that we do on our business," said Mr Karlos's son, Matthew, who joined the family business three years ago to ensure it was complying with its licencing and council conditions.

Larry Karlos is taking the council to the Land and Environment Court this week after it rejected his bid to run bigger tankers, which would allow him to sell his full 60-megalitre allocation.

'Water quality one of the biggest issues in the world today'

Sorry, this video has expired Truck movements at the Karlos extraction point on March 19 and 20. ( Supplied: Tweed Water Alliance )

Mr Tager said it was the Karlos operation which had a case to answer for what he alleged were breaches of its council approval.

He showed 7.30 photographs which allegedly showed tanker movements around the water filling station on the Karlos property on February 19 and 20.

He said they showed nine tankers on the February 19 and 10 tankers the following day, both more than the six tankers allowed under the council development approval.

"He's potentially making hundreds of thousands of dollars a year he's not entitled to," Mr Tager said.

Larry Karlos said he would not comment on the photographs, on legal advice, before this week's court case.

But in an earlier interview, Matthew Karlos insisted the business operated within its council and NSW licence conditions.

The Tweed Shire Council last year narrowly voted to prohibit any expansion in the water-extraction industry, although it needs state government approval.

Faced with a burgeoning population, climate change and potential water shortages, Greens Mayor Katie Milne said a precautionary approach was needed.

"The problem is really that we don't know what's going on … underground," she said.

She said there had been a recent "rash of applications" for water extraction and that she was worried the industry could "expand exponentially".

Other towns in regional Australia have been waging similar battles, with the small Victorian community of Stanley taking their fight all the way to the Supreme Court.

"To see what's happening here could happen anywhere," Mr O'Brien said.

"Water quality is one of the biggest, biggest issues in the world today."