The project, which aims to deliver a permanent supply of water to the historically-problematic lake, has taken a step forward this week - though funding for the works is still hanging in the balance.

NSW Water Minister Melinda Pavey has issued instructions for legislation to be drafted to provide council with a special license, allowing it to pump 1800 megalitres of water from the Murrumbidgee River into Lake Albert each year.

Council's general manager Peter Thompson said the update is "very positive" and provides comfort to councillors and the community that the state government is honouring the commitment it made back in March.

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Mr Thompson said council is designing the route for the pipeline and is looking at repurposing an old pressure sewer line that runs from Hammond Avenue to the Kooringal Water Treatment Plant, which could slash the cost of the project.

"We're proposing to clean that [sewer line] and sanitise it to use, which actually reduces the cost impact of the pipeline an enormous amount," the general manager said.

"Then we really just need to build the section on the riverside ... then a small section on the top-end to get it into the stormwater system that already feeds the lake."

Council is still on the lookout for a way to fund the project after its recent application for a $4 million grant from the federal government was rejected.

Mr Thompson was disappointed by the federal government's refusal to fund the project but said the works will go ahead regardless and council will continue pushing for grants.

"The state government said no a few times too and we didn't go away and I think our attitude will be the same this time," he said.

The current aim for the completion of the pipeline is still April next year, but Mr Thompson admitted that could be pushed back due to the funding troubles.

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