The small New England town came dangerously close to running dry last year - and that was before the town's water supply was switched off due to elevated levels of arsenic.

Uralla Shire Council Mayor Michael Pearce said he hoped a new $1.5 million grant to help secure groundwater supply for the town would mean they will have a backup in the next drought.

"If the drought comes back again in a vengeance, like it may in the next few years, this is really like our plan 'b' so we can supplement our augment the water supply," he said.

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He said they have reliable information that there is a big aquifer under the small town.

The plan is to pipe that water directly into the treatment works.

But the first bore may hit water that is too hot, too cold, brackish or too salty. Cr Pearce is confident that the right water is available and said local MP Adam Marshall had committed to top up the original project budget to cover any overspend on exploration.

"Like any town, you need water, you need water to survive, you need water to attract people," he said.

"People won't come to a town where there's no decent water supply. So this is a godsend for us."

Northern Tablelands MP Adam Marshall said the project would help guarantee the town's water security.

But asked if Uralla was drought-proof Mr Marshall said that depended on how severe future droughts get.

"It'd be brave for any politician to say anything is drought-proofed after the drought that we've just gone through," he said.

"That's the worst one that anyone can remember, but who knows if the next one will be even worse

"But insofar as we can predict the answer is yes.

"But certainly it will give Uralla a level of water security that it has never had before."

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Kentucky Dam, Uralla's main water supply, is currently 100 per cent full. At the height of last year's water crisis, the dam was just 30 per cent full with just weeks in storage and declining at an alarming rate.

The town was forced onto bottled water after tests showed up an unsafe level of arsenic in the remaining water supply.

The town has since spent $2 million of taxpayer money upgrading the town water treatment plant, which now has the capacity to remove arsenic from water.

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