People have been warned not to use water from the Campaspe River downstream of Kyneton for stock, domestic or food crops, after low-quality water was released without the approval of the Environment Protection Authority.
Coliban Water began releasing treated industrial waste water from its Kyneton Water Reclamation Plant into the Campaspe River on Thursday.
The EPA will investigate the circumstances leading to the discharge.
Member for Eastern Victoria Jeff Bourman raised the issue in parliament on Thursday.
Coliban Water said it planned to release up to four megalitres of C Class water - treated industrial waste - into the Campaspe per day.
This does not comply with its licence.
The EPA granted Coliban Water a licence exemption for an emergency release of Class B treated water - from domestic use - from the reclamation plant last week.
Executive general manager water quality David Sheehan said this discharge was necessary to stop the onsite storage lagoons from overflowing, causing them to fail.
In April Coliban Water told the Bendigo Advertiser it had no plans to discharge treated water straight into the Campaspe River in 2019.
Mr Sheehan said Coliban Water had expected higher streamflows, which would allow it to discharge Class B water, and move Class C water around on site.
Huntly Barton, who farms land on the Campaspe to the north of Kyneton, said it was a "disgrace" that unlicensed discharges had continued for so long.
Coliban Water has discharged water outside its licence into Snipes Creek five times in the past 12 years, in 2007, 2010, 2012, 2013, 2014 and 2016.
It has discharged water into the Campaspe River in 2013, 2015 and 2018. In 2016 and 2018 Coliban Water discharged treated water of a diminished quality into the Campaspe.
Mr Barton relies on water for household and stock use from a natural hole on his land. He stocked up on safe water from his domestic use and stock when warned of the Class C release.
He has stored water for domestic use for about a month, and for his stock for about two weeks. Mr Barton said he would need to put a bore in within the fortnight unless there was significant rainfall.
"I've got this magnificent natural hole, which is reputed to be the second biggest natural hole this side of Eppalock, and we've pumped out of it for the last 50 years and for the last five years our water has been degraded," Mr Barton said.
Associate Professor in the Department of Ecology, Environment and Evolution at LaTrobe University Ewen Silvester said Class C water generally had a higher level of E. coli remaining than higher grade treated water.
Releases of wastewater into rivers could change the nature of the organisms that live there, and change the biological structure of the waterway, Associate Professor Silvester said.
This would typically affect invertebrates, small insects and larvae first, he said.
Associate Professor Silvester said rivers normally recovered from such releases, and it would only affect wildlife or fish in extreme cases.
Coliban Water said it had initiated extra water quality monitoring of the discharge and the Campaspe River.
EPA North West Regional Manager Scott Pigdon said the discharge had implications over a long stretch of the river.
"It is important the community is made aware of potential health issues it could create. EPA will monitor water quality and expects Coliban to do the same and make the results available to the community," Dr Pigdon said.
Mr Bourman said he had raised the frequent unlicensed discharges in parliament after being contacted by a concerned farmer.
He said the water treatment plant needed to be upgraded to cope with increased growth of population and industry.
Coliban Water has budgeted to deliver lagoon compliance works by 2021-22.
"We need something better than just fencing off the river and saying, 'You can't use it for up to four years', particularly in a period of drought or low rainfall. It's not really practical," Mr Bourman said.
"It's a government body, Coliban Water, that's doing this, and I think the government needs to get onto it a lot quicker than it is."
Minister for Water Lisa Neville said Coliban Water had worked with the major trade waste customer in the area to install infrastructure to store and dispose of treated wastewater from the Kyneton plant via irrigation, expected to be complete by March 2020.
Ms Neville said Coliban Water was providing an upgrade to its treatment plant to improve the treatment processes to provide recycled water to this customer for irrigation.
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