NSW Water Minister Melinda Pavey on Wednesday signed a memorandum of understanding with Wagga mayor Greg Conkey in a long-awaited major step towards using the Murrumbidgee River to replenish the lake.

Cr Conkey said the council's preference was to seek government grants to pay for a river-to-lake pipeline, which at a rough estimate would cost $3.5 million to $4 million.

"We have already put in an application for grant funding and we'll see what happens concerning that," he said.

"If we don't get the grant funding we'll come back to council to see whether we can take out some loans for this proposal or do a special rate variation."

Wagga ratepayers already have a special rate variation, due to end in July, of 3.83 per cent for the past five years to help pay for the city flood levee upgrade.

"Our first point of call is federal grant funding and if we can't do that we will come back to councillors and decide whether it's a special rate variation or borrowings," Cr Conkey said.

"We are about to come out of a special rate variation; I think the community would be supportive of continuing that on to provide certainty to the lake."

Cr Conkey said the council was not yet in a position to release a timeframe for how long the pipeline would take to build after the money was secured.

The deal granted the council an interim licence to use up to 1800 megalitres per year to top up the lake in recognition of the treated effluent already pumped into the river.

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Ms Pavey said the deal had come about because of the "attention to detail" put in by council general manager Peter Thompson.

"There were a lot of people in my agency who said it couldn't be done, but we kept the conversations going because I love this town; Wagga is a great community .. and city of this size deserves a lake, it deserves a lake with water in it."

Riverina Ski Sports proprietor Peter Clucas said the lake deal was "the best news we have had for a year".

"It's an incredible decision, it's what we were looking for, it's what we wanted and full credit to the council," he said.

"It just literally created two jobs, for a sales person and a mechanic, in our business."

Wagga Sailing Club member Garry Williams said deeper lake water would allow more events, boost the economy and "put the city back on the map" for visitors.

Ms Pavey said she was confident that the deal would not affect other river water users.

"I have already had concerns from Coleambally Irrigation in particular and they are an organisation that I respect enormously ... I would not do anything to hurt our farming sector," she said.

Wagga MP Joe McGirr said the deal was "a great step forward" and thanked MLC Wes Fang and Riverina MP Michael McCormack for their help securing it.

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