Phormidium has been found in the Shag River upstream from the drinking water intake at Palmerston, and it is also widespread in the Waianakarua River.
It was also found in those rivers last summer, Otago Regional Council environmental information and science director Dr John Threlfall said yesterday.
Phormidium is typically a green-black slimy algae found on rocks in the water.
Dried phormidium, found on stream banks, also poses a risk.
Dog owners should keep dogs away from the two rivers until they were clear of algae.
Eating algal toxins might also be harmful to humans so people should avoid contact with algal material in the water or on the banks of the rivers and young children should be supervised, Dr Threlfall said.
Otago-Southland medical officer of health Dr Marion Poore said people swimming in water with increased levels of algal bloom had been known to develop allergic reactions - asthma, eye irrigations, rashes, blistering around the mouth and nose and gastrointestinal disorders including abdominal pain, cramps and diarrhoea.
People should not swim in rivers if there appeared to be algae there.
All users should exercise caution.
Dr Threlfall said the Waitaki District Council was monitoring the situation.
When contacted, the council's water and waste water assets manager Martin Pacey said testing done last summer by Public Health South confirmed there was no issue with drinking water. He was contacting them again.
