The state government is facing accusations of pig-headedness over the use of water from the controversial desalination plant as a town just a few kilometres away runs dry.

Korumburra is 35 kilometres from Australia's largest desalination plant - a plant capable of producing 150 billion litres of water a year.

Water, water everywhere ... the desal plant.

The Korumburra area was on stage-two water restrictions last year and South Gippsland Water has warned of a "significant challenge of ensuring water availability to its northern towns (in particular Korumburra) in the context of major customer expansion, population growth and potential climatic volatility".

The water company wants to connect the town to the Lance Creek Reservoir supply, which is connected to the multi-billion-dollar desalination plant and Melbourne's water supply as a back up.