The damage was barely visible in the light of day yesterday, but a firefighter who attended the scene said it had had the potential to be a serious fire.
The Clutha District Council said the plant continued to produce throughout the incident, and district assets manager Jules Witt said: "There is no cause whatsoever for alarm by Milton water consumers."
The Milton Volunteer Fire Brigade was called to the North Branch Rd facility, about 3km northwest of Milton, at 3.20am yesterday.
Station Officer Brian Cowie said the building was full of smoke and, after an initial investigation, staff waited on a hazard chemical and decontamination unit to arrive from Dunedin.
The fire, which started in the chemical storage room, involved "a cocktail of chemicals" which created a plume of black smoke, forcing crews to evacuate three properties within a 500m radius.
Residents were moved about 3.30am and were able to return safely to their homes about 7.30am.
Mr Cowie said the combination of chemicals and the uncertainty they created meant the fire had "the potential to be very nasty".
Mr Witt said damage was limited to the immediate vicinity of the blaze and the cleanup and repair costs were not expected to be significant or affect the plant's operation.
The cause of the fire was not known but a fire-investigation specialist inspected the site yesterday afternoon.
The $4.4 million plant was officially opened in May.
The Department of Corrections, which takes water for its nearby Otago Corrections Facility at Milburn, paid more than half that cost.
The plant was built to cope with anticipated extra demand in the years to come. It can at present treat 3000cu m a day but has the ability to cope with up to 4500cu m daily if needed.
Its average daily production, at the time of its opening, was 1290cu m.
