Sydneysiders will be able to water their gardens and wash their cars using only a bucket from next month, after the NSW Government announced tough new restrictions.

Key points: Level 2 restrictions will come into place next month

Level 2 restrictions will come into place next month Greater Sydney, the Blue Mountains and the Illawarra are the affected regions

Greater Sydney, the Blue Mountains and the Illawarra are the affected regions It comes as dam levels are predicted to fall to 45 per cent

The Level 2 restrictions will apply to Greater Sydney, the Blue Mountains and the Illawarra from December 10.

More than 85 per cent of Greater Sydney's water is supplied by rainfall, but dam levels have plummeted due to the drought.

The Government introduced Level 1 restrictions in June, and the last time Sydney faced Level 2 restrictions was during the Millennium Drought.

Premier Gladys Berejiklian said the restrictions would take effect when dam levels reached 45 per cent.

The dam levels for the Greater Sydney catchment, including Warragamba Dam, was at 46.2 per cent yesterday.

"Usually, we would expect to have Level 2 water restrictions come into effect when dam levels reached 40 per cent," Ms Berejiklian said.

"But given the rapid rate of decline of our dam levels we have decided to enact the next level of restrictions sooner than planned.

"We're experiencing one of the most severe droughts on record and we expect introducing Level 2 restrictions to save 78.5 gigalitres of water per year."

Under the new Level 2 water restrictions people will be required to use a bucket or watering can to water their gardens between approved times.

Cars can also only be washed with a bucket or taken to a commercial car wash and topping up of pools and spas is limited to 15 minutes a day with a trigger nozzle.

Fines will be imposed for those who do not comply.

Residents could be slapped with a $220 penalty and businesses could face fines of $550.

The Government has not indicated when the restrictions could be lifted, with the Bureau of Meteorology predicting another hot, dry summer.

"We're doing the work to save as much drinking water as we can to ensure there is enough if the drought persists," the NSW Minister for Water, Melinda Pavey, said.