Environment Southland said its compliance and science teams investigated after a report of dead eels in the Low Burn Stream near Mataura.
Compliance manager Donna Ferguson said the team estimates there were several thousand dead eels over about a 10-kilometre distance.
“Our staff have spent extensive time out investigating any potential causes and we have identified one potential source.
"We have sent a suite of samples away for testing and will continue to look for further evidence.”
“We know the deaths of these eels and other stream life in the area will be distressing. This is an active investigation and our teams are working hard to establish the cause.”
People were asked to avoid contact with the water, and report any further eel deaths to the compliance team on 0800 76 88 45.