Tamworth Regional Council has been slapped with two $1500 fines for taking water it was not entitled to from the Scott Road drift wells.
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The Natural Resource Access Regulator (NRAR) claimed the council took more than 300ML in-excess of what it was allocated in the 2019-2020 water year from the Peel Alluvium.
A thorough investigation was conducted into the matter to weigh up the severity of the breach and the council's culpability, NRAR water regulation director Greg Abood said.
"As a risk-based regulator we employ a graduated and proportionate approach to any alleged breaches of water laws," he said.
"Although we considered the mitigating circumstances, the community expects public water utilities to comply with the law. It's even more critical in times of drought.
"Water allocations are in place to provide fair access to water for both licensed water users and the environment - this is why it is critical water users don't exceed them."
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The council's attitude toward the investigation and the public interest was taken into account in the NRAR probe, the authority said.
The regulator claimed it was a breach of the Water Management Act 2000 for taking water for which there is no or insufficient allocation.
The Peel Alluvium is classified as "at risk" under the NSW Non-Urban Water Metering Policy.
Tamworth Regional Council water and waste director Bruce Logan declined to comment on the two fines until it was discussed at the next council meeting.