Tamworth Regional Council confirmed an old gasworks site on Marius Street - which helped power streetlights a century ago - is under investigation, to reveal the level of contamination.

The state's Environment Protection Authority (EPA) demanded council look into the state of the land, as the last operator.

"We want to be able to reduce any risk to the community, and the EPA has ordered us, so we have no other choice but to do it," council's manager of compliance Ross Briggs said.

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Workers at the Aldi development next door to the old gasworks - which is now owned by Elgas - picked up on a groundwater contamination and reported it to the EPA.

Mr Briggs said investigation work would start immediately, and could cost hundreds of thousands of council's dollars.

"The investigation will go on for about a week, and that will involve drilling of the site for test bores, taking soil samples from the site and also water samples, and also digging of test pits," he told the Leader.

He said council was not aware of any urgent health risks posed to the community.

"The aim of our investigation is to see if there is any spread of contamination off the site, and from there we can make a better call," Mr Briggs said.

The state government has put forward up to $250,000 for the investigation, which Tamworth Regional Council must match. Mr Briggs said he hoped it wouldn't cost that much, but the price of remediation could be hefty.

"The remediation phase, we have been given a grant for up to half a million, again we would match that, but there is potential for that remediation phase to go a lot higher," he said.

"They [EPA staff] make a call on what remediation works they require, it might just be that they say everything is fine as is and we'll let it go, or it could be a full-scale remediation program where we dig up the site and have to take the material away, that's an unknown."

There are a couple of properties in the area connected to groundwater, but Mr Briggs said if restrictions did have to be imposed, it shouldn't be a big impact.

It is understood the discovery has not hindered the progress of Tamworth's new Aldi store.