A recent council technical report found groundwater quality was pristine throughout most of the Hawea Basin, but the quality of domestic supply bores at Hawea Flat settlement was being compromised by septic-tank leaching.
The author of the report, resource scientist Scott Wilson, said a nitrate "hotspot" around the settlement was identified by groundwater sampling.
He concluded that to prevent further contamination, a groundwater protection zone for rural lifestyle and rural residential land in the settlement could be adopted.
Intensification of farming was not expected to affect groundwater quality if the leaching limit of 30kg per ha per year as recommended in the rural water quality changes was adopted, he said.
Mr Woodhead said the septic-tank situation was compounded by many of the settlement's water bores being "pretty damn close" to their septic tank systems.
The report was "a sound basis for what is and could occur to their water quality", he said.
Many of the area's bores were not drilled deep enough and were vulnerable to low lake levels, particularly if low levels coincided with high groundwater demand, the report said.
"Better security of supply could be provided by a groundwater take protection zone."
Council environmental information and science director John Threlfall said the quality of drinking water in the settlement was good and there was no immediate health risk.
The council believed the proposed 30kg rule would control any dairy leachate problems.
However, if the community wanted, a groundwater protection zone could be adopted, but it would trigger the need for residents to get consents for their septic-tank systems and upgrade them.
The situation could also be dealt with through a Queenstown Lakes District Council bylaw.
The community also had the options of deciding to source their water away from the septic tanks, piping it to their homes and cleaning up their tank systems, he said.
Cr Gerry Eckhoff said landowners could be facing "massive costs" to fix the problems.
Mr Wilson said the study also showed there was insufficient groundwater available to meet potential irrigation demand on the two main aquifers, Hawea Flat and High Terrace.
"There is currently a large imbalance between water availability and demand, in the two main aquifers."
The largest consented volumes are in areas reliant on annual rainfall recharge, but in areas with abundant recharge for surface water, reservoirs are not being used.
The report was noted by the natural resources committee and will be used as baseline data during the plan change and consent processes.
