Affected areas include Greymouth and the suburbs of Cobden, Blaketown, Karoro and South Beach, plus Boddytown, Paroa, Kaiata, Dobson, Taylorville, Stillwater, Runanga, Dunollie, Coal Creek and Rapahoe.
The notice was enacted at 10am today and remains in place until further notice.
"While the source of the contamination is still under investigation, council is taking a proactive approach to safeguard public health," Grey District Council chief executive Joanne Soderlund said.
"As part of our standard procedures, the water supply is tested regularly and in this instance, sampling results have indicated a need for further investigation and temporary protective measures. Council has immediately commenced a programme of daily sampling and monitoring to confirm water quality."
John Paul II High School closed at 12.30pm due to the water situation.
Principal Renee Hutchinson said although that meant children were out of school before school buses were running, they had access to clean drinking water in town.
The school would reopen tomorrow and Friday, but students had to bring their own water.
A post on the John Paul II High Facebook page that they had been advised of an E.coli outbreak were quickly quelled and the school was asked by the council to remove any reference to E.coli.
A council spokeswoman said it had not yet been confirmed what contaminant was found.
"Nothing will be confirmed until testing comes back, likely after 3pm. We just want it out there as far and wide as we can."
Greymouth High School and St Patrick's Primary School bought in bottled water and stayed open today.
Grey High principal Samantha Mortimer said the board of trustees would decide later today what to do for the next few days.
The 'boil water' notice affected things like hand washing too, so they were assessing sanitiser stocks.
If they did close, they would move to home learning, Ms Mortimer said.
Schools were securing bottled water for the Grey District Athletics under way today at Anzac Park. Some schools had asked parents to bring water down to the park.
Following national drinking water standards, three consecutive days of clear test results are required before the notice can be lifted.
Residents in all areas connected to the town supply are advised to boil all water used for drinking, food preparation, brushing teeth, and making infant formula until further notice.
At 1.14pm, the Grey District Council reinforced the warning with an automated alarm over cellphones. For queries, phone (03) 769-8600 any time.
- By Meg Fulford and Laura Mills
