The figures meant about 2.4 million cu m of water was being lost to leaks and burst pipes each year, council staff confirmed.
The leakage was largely due to old pipes and high pressure "hot spots" within the city's network of pipes, and occurred despite a series of council initiatives aimed at reducing leaks, staff said.
However, the figure was revealed just one month after the council heralded the arrival of "Ab" water quality at the Mt Grand and Southern water treatment plants, 14 years after work began.
The amount of water being lost prompted Cr Colin Weatherall to tell a recent council infrastructure services committee meeting that leaks and rusted city pipes needed to be addressed to ensure the city's new "top-class water" was making it "out of the tap".
"The reality is, we have got to get it into that glass to be successful," he said.
Dunedin's leakage compared favourably with Wellington, which lost about 20% of its water each year, but poorly with Hamilton, which lost about 11%, Christchurch, which lost 12%, and Auckland, which lost about 14% (or 7.6 million cu m of water) each year.
A small proportion of the "unaccounted for water" was due to other factors, such as flow testing or illegal connections, staff spoken to said.
Dunedin City Council water and waste services manager John Mackie told the Otago Daily Times the council was continuing work to reduce the amount lost.
The council budgeted $1.5 million for pipe renewals in the 2008-09 year, which was due to rise to $3.4 million by 2012-13.
A further $192,000 was spent each year on leak detection work, including using ground microphones, he said.
"We have got a strategy to manage that. It's coming down - the whole drive is to bring it down," he said.
Council water production manager Gerard McCombie said the leakage had reduced from 24% or 25% about 10 years ago, when records began, but many "old, rusty pipes" remained in the city, affecting water quality and supply reliability.
The council's focus was shifting after the completion of its 12-year water strategy, adopted in 1995, which aimed to secure water catchments and upgrade water treatment plants as a priority.
Council staff were preparing the draft Three Waters Strategy - involving long-term planning for the city's water, wastewater and stormwater services - and more initiatives were expected when it was completed next year.
Mr McCombie said the aim was to reduce leaks below 10%, although "diminishing returns" would make it difficult to achieve a much lower figure, he said.
In the meantime, the council's existing pipe renewal programme was aimed at reducing the average age of the city's pipe network.
Pipes were flushed to rid them of accumulated material, he said.
Pipe pressures were managed in an effort to prevent leaks or bursts, and the leak detection team aimed to find and repair less visible leaks, which accounted for the majority of water lost, he said.
