It would be built east of the river, south-west of Bodalla, between Bullockys Hut Rd, Big Rock Rd and Waincourt Rd.

Mr Constance said the NSW Government would invest $25.6 million to design and construct the "Eurobodalla Southern Water Storage", adding 3,000 Megalitres of storage.

"We are also investing $762,000 to eliminate the risk of sewage pollution to Wallaga Lake through the design and construction of a pressure sewerage system at Akolele to transfer sewage to the Bermagui sewerage treatment plant," Mr Constance said.

Water Minister Melinda Pavey said the current drought was "outside the history books".

"While we continue to invest in emergency water infrastructure, we must ensure we are maintaining our regional water infrastructure and investing in the future of our communities," Mrs Pavey said.

Eurobodalla Mayor Liz Innes said the state funding was vital.

"This funding is just so critical to the future water security and economic growth of the Eurobodalla," she said.

"The new storage also means improved environmental outcomes for the Tuross River and better support for our farmers who also rely on the river."

In March 2018, Eurobodalla Shire Council urged a new storage facility be built to ensure water security in drought.

Putting the plan on display at the time, the council said the proposed works would be located "on an unnamed third-order ephemeral stream about 950m east of the Tuross River, within the Tuross River catchment".

"The majority of the works would be located in the Bodalla State Forest," a council spokesperson said.

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