A new government irrigation fund will help finance a feasibility study into a water storage dam in Hawke's Bay.
Farmers, who have experienced a rare wet summer, are welcoming the move but environmentalists are concerned.
Previous droughts have caused huge economic loss in the region and the regional council is proposing to build a $170 million dam in central Hawke's Bay so water can be stored in the winter and used for irrigation in the summer.
The project is one of the biggest irrigation works in New Zealand. The dam will be about 85 metres deep, will extend 7.5 kilometres and will contain 90 million square metres of water.
The water will be used to irrigate an extra 20,000 hectares of land and also has potential for hydro-electricity.
A secure irrigation source would also unlock land for more dairy and cropping.
But Fish and Game says more farm run off will result, reducing water quality. And spokesman Peter McIntosh says controlling flows along the rivers will destroy fish life.
"A major concern is obviously the environmental impact that it will have, it's going in a main stream that it was never going to so we will lose some spawning ground and habitat and fishing opportunities."
The Opuha Dam in Canterbury was also built to relieve water problems but the project prompted complaints about poor quality water being released into the rivers.
Graeme Hansen from the Regional Council hopes Hawke's Bay will be able to prevent that happening.
"Our hope is that we can prove this is feasible, tick off the environmental issues that are associated with it and make it affordable."
The Government has set aside $35 million for irrigation development nationwide and Hawke's Bay is getting the first boost with $1.7 million going towards the dam's feasibility study.
Primary Industries Minister David Carter says the Government has made a commitment to increasing productivity.
"I think many people don't realise the value of irrigation."
A dam of this scale would usually take about 10 years to plan before being built but with Government support Hawke's Bay farmers could be tapping into a new water supply in half the time.