The Belmont water desalination plant has received planning approval, with the estimated four-year construction of the facility expected to begin later this year.
Hunter Water - in charge of delivering the State Significant Infrastructure Project - says it does not take the increase in water bills, which will come with funding the project, lightly.
The NSW government announced on Thursday morning the green light had been given to build the $530 million desalination plant, which would use sea water to provide about 15 per cent (30 million litres) of the Hunter's average daily demand.
The plant will be funded through Hunter Water customer bills and was included in the utility's pricing submission to the Independent Pricing and Regulatory Tribunal.
The new pricing structure will take effect from July 1 next year.
The Newcastle Herald reported in January the cost of the project would add an extra $90 to the average household water bill each year.
"We understand the rising costs of living are weighing on our customers and we don't take an increase to our customers' bills lightly," Hunter Water managing director Darren Cleary said in the government's announcement on Thursday.
"We have strengthened our overall support for our customers, with a range of assistance programs and support services available to help them pay their bill. This includes payment extensions and flexible payment options such as our bill smoothing program, Easy Pay."
Mr Cleary said a severe drought of more than three years could mean the region would run out of water without the desalination plant.
"We can't rely on rain alone any more. Our region's water storages can fall from typical operating levels to critical levels in less than three years," he said.
"The Belmont Desalination Plant will also assist us in managing the region's water security while storage levels at Grahamstown Dam are reduced as we address recently identified dam safety issues."
Minister for the Hunter Yasmin Catley said approval of the plant was a "great step towards securing a reliable, sustainable water source" for the region.
"This plan should give our community peace of mind that the NSW government is taking the matter of water security incredibly seriously," she said.
Construction is expected to create up to 215 full-time equivalent jobs and the plant is due to start operating in 2028.
The project began as a temporary drought response measure in 2018, before the former state government announced in 2021 that it would be a permanent piece of infrastructure with twice the capacity of a temporary plant.
