Coliban Water has warned "certain weather conditions" could result in non-compliant water releases into the Campaspe River.
Recent rainfall has reduced the Kyneton Water Reclamation Plant's storage capacity, with its lagoon 96 per cent full as of Friday, October 9.
The plant is operating normally, and Coliban Water says only tertiary treated water is being released into the Campaspe River, in accordance with its Environmental Protection Authority licence conditions.
More local news: One person hospitalised after car crashes into tree
The water authority also said it was pumping three megalitres of class B recycled water to storage for irrigation at the Hardwick Meatworks site, and there was some additional storage in other onsite treatment lagoons.
Inflows into the plant have started to decrease since the rain ceased, but the reduced capacity means there is a risk that "certain weather conditions" could result in releases of water that do not comply with Coliban Water's EPA licence.
Coliban Water said it was committed to giving downstream landholders advance warning of any such releases.
Kyneton is forecast to receive showers this week, although the rainfall is not expected to be as heavy as last week.
Construction work on a 200-megalitre storage lagoon for the plant - which would double storage capacity - was due to begin last month but was delayed because of wet weather and final design changes.
Coliban Water now expects work on the lagoon to be finished early next year, depending on weather.