However, the current LIA chairman has warned that the popular waterway has never been under greater threat.

Deputy Premier Andrew Stoner said the government had decided to adopt the recommendation of a review into management for the waterway.

He said the review had concluded that the LIA had met its objectives under the Lake Illawarra Authority Act.

"The review recommends repealing the Act and creating an estuary management committee to manage the lake into the future," Mr Stoner said.

"The estuary management program devolves the responsibility of the lake to local councils and their stakeholders and gives them a more direct role in its management."

After nearly a year of dragging its feet, the state government appointed a new LIA board last July. Parliamentary Secretary for Natural Resources Troy Grant said the one-year appointment would assist in a review of the LIA's future.

The LIA has successfully undertaken works to restore the environment of Lake Illawarra, including dredging and erosion control, as well as a range of infrastructure upgrades.

The review considered three options: retaining the LIA, establishing the lake as a state park with a trust in place to manage it, or transferring responsibility to Wollongong and Shellharbour councils and state government departments.

The review recommended the third option, which would include the creation of an estuary management committee.

Retaining the LIA was ultimately dismissed due to, in part, funding and equity issues.

"There is now substantial overlap between the activities of the LIA and the role of local government (and other NSW agencies) in other comparable estuaries," the review said.

Doug Prosser, chairman for 23 of the LIA's 25 years, was disappointed, but said the move was no surprise.

"We knew a year ago when it took 10 months to appoint the new authority . . . It didn't take much to realise our days were numbered," he said.

"I think what it was like 25 years ago and we have certainly made some progress."

However, Mr Prosser said he was concerned for the lake's future, saying there had never been a greater need for the LIA given the projected population growth to be living on the shores of the lake within the next 20-30 years.

"It has never been under more threat that it is right now," he said. "It's just history repeating itself . . . They have tried this model before and it hasn't worked.

"The last thing I want to see is the lake going backwards. I don't want to see the work we put in destroyed."

Member for Shellharbour Anna Watson said the government should put the recommendations in its review of the LIA to the community for consultation before being implemented.

"There is a risk that by abolishing the Authority, the management of Lake Illawarra will revert back to the bad old days when no-one accepted responsibility for the waterway or its foreshore and simply passed the buck," she said.

"Lake Illawarra will now have to compete for financial resources with other waterways in NSW for ongoing funding from the state government.

"I very much worry that neither local council bounding the lake has enough financial resources to invest in the continued good management of the waterway."

The move was welcomed by Save Lake Illawarra Action Group spokesman and long-time LIA critic Col Wilton.

He said responsibility for the lake would be in the hands of elected people.