The 55-kilometre Dungowan Dam pipeline has surmounted another hurdle.
NSW Water Minister Melinda Pavey announced the preferred route for the pipeline, on Thursday.
The new pipe will replace the existing 70-year-old infrastructure.
The pipeline will run from the proposed new Dungowan Dam to Tamworth Regional Council's Calala Water Treatment Plant.
Mrs Pavey said that in 2020 the city faced the real possibility of running out of water, but there were no obvious or quick solutions to the problem.
"This water insecurity threatened thousands of jobs and brought real hardship to our farmers and communities," she said.
"The Dungowan Dam pipeline is part of a once-in-a-lifetime opportunity to deliver critical infrastructure and bring generational improvements in water and economic security for the people of Tamworth and the Peel Valley."
The preferred route was finalised after months of extensive studies, assessments, technical investigations and community consultation, but did not substantially differ from the preferred route announced in February.
Tamworth Mayor Col Murray said the proposed Dungowan Dam project will be paramount to the city's future prosperity and growth.
"It's the deal breaker for our city to grow and develop," Mr Murray said.
"Nothing survives without water. If you don't water your flowers, the flowers die. The same thing happens to a city."
Construction of Stage 1 of the pipeline project is expected to start by early next year and will take 12 to 18 months.
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