The agency in charge of Sydney's water catchment says it remains "strongly opposed" to the expansion of a coal mine, warning that without increased setbacks from two dam walls "risks and consequences could be extreme".

In a letter to the Planning Department last month, WaterNSW's manager for catchment protection Clay Preshaw said the extension of South32's Dendrobium underground mine in the Illawarra region could also trigger rock fracturing and potential water losses for nine major watercourses and about 100 smaller tributaries.

Duncan Rayner, a UNSW researcher, at a dried-up creek within the Metropolitan Special Area over the Dendrobium coal mine. Credit:Nick Moir

"WaterNSW remains strongly opposed to this project in its current form as none of its key concerns have been adequately addressed" on the expansion plan, Mr Preshaw wrote.

The agency believed there has been "insufficient consideration" of a mine design that would prevent or minimise drainage cracks reaching the surface. South32's predicted additional losses of as many as 5.2 million litres a day from the extension may also be an underestimation, he said.