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The water supply in the towns has been an ongoing headache as the supply is sourced from the flood-prone Manuherikia River.
The Central Otago District Council implemented interim measures last winter as frustration grew among residents.
Temporary containerised treatment plants were added to the existing water treatment plant, leading to a decline of boil-water notices.
No notices for the townships have been imposed so far this year.
There was one notice in place last year in the area for 16 days following November's Otago floods and a total of five in 2017.
Development of the Mawhinney Rd site as a new source of the district's water supply was now a focus as the council had been encouraged by water quality results at the site, council water services manager Quentin Adams said.
Testing had been carried out at the north end of Thompson's Creek near the Mawhinney site following "successful negotiations" with neighbouring landowners earlier this year.
The council confirmed the three monitoring bores installed last month had been showing "very positive results".
Mr Adams said testing around Mawhinney Rd had been successful.
"It has identified a source of very good-quality water that, once treated, will be suitable as a drinking water supply."
Further investigations into how the water responded to "various weather conditions" and its treatability were next on the agenda, Mr Adams said.
"There will be discussions with landowners before any construction begins.
"Once this is complete, the next steps will be to engage water treatment design and construction contractors."
Residents in the town have expressed their satisfaction with the improved supply over the past year.
Omakau Ratepayers and Citizens Association chairman Colin Stevenson said it had been a "great improvement".
"It has been excellent. The one frustration is that it's taken so long."
Another resident who preferred not to be named said the water had been much better, but water pressure remained "below par".
Mr Adams confirmed the council expected the project to be completed by December next year.