Brisbane residents have been told to limit water use after flooding forced the shut down of two processing plants.
Premier Campbell Newman said water coming into the plants at Mt Crosby was four times more turbid than what it was during the 2011 flood event.
Water is being brought in to Brisbane from the Gold Coast and north of the Sunshine Coast, but that would only supply half the capital's needs.
It comes as Australia begins the clear-up after massive flooding across Queensland and New South Wales, brought on by strong winds and heavy rain by ex-tropical cyclone Oswald, which have seen thousands evacuated and four people killed, including a three-year-old boy.
The child was crushed by a falling tree. His pregnant mother is still in hospital with a number of broken bones.
Rivers in Queensland have hit record high water levels, said ONE News Australia Correspondent Steve Marshall, who has been stopped at a road block on his way out of the town of Gympie towards Bundaberg where the worst of the flooding has occurred, as police say it is too dangerous to continue towards the town.
A truck stop near the road block is full of people fleeing the floods, some have been camping out there for three days, he said.
In Bundaberg the hospital has been completely evacuated, as the Burnett River reached its highest level since records began more than 100 years ago.
It is thought around 7500 people have been displaced, 2500 to 3000 homes destroyed and up to 300 business affected by the floods in Bundaberg alone.
Bundaberg mayor, Mal Forman, said the area had been "inundated by water".
"We are going to have a huge clean-up bill here, and it's going to be a huge clean-up effort," he said.
In Gympie storm waters have destroyed 500 homes and businessess.
The cost of the flood damage across the east coast of Australia is estimated to reach up to tens of millions of dollars.
Marshall says it looks like "more devastation" for the people of Bundaberg.
"Right now the river's rising to 9.7 metres, a new record, and if you think that's high spare a thought for the people of Gympie, it's local river peaked at about 10.7 metres. So plenty more devastation ahead for flood stricken communities up and down this coast," he said.
In Brisbane, the water supply problem is likely to last for days, until cleaner water being released from Wivenhoe dam reaches the processing plants.
Until then, residents have been urged to only use water for essential purposes, including drinking, cooking, and bathing.
"The water (coming downstream) is four times muddier than it was in 2011. The effect of that has been to cause the two treatment plans to shut down," he said.
Newman said currently the plants can only produce and supply half the 450 megalitres the city normally consume per day.
"It is serious. We need people to conserve water," he said.
No flooding inside Brisbane homes
In Brisbane many were relieved the flooding was not as catastrophic as predicted, with homes spared serious damage and no reports of water above the floorboards.
"Obviously, underneath the homes there's been several cases of (flooding)," mayor Graham Quirk said.
He said there might be homes flooded in trouble-prone areas such as Rocklea, but there have been no reports at this stage.
"Once this peak concludes, we'll get a situation report over the whole city."
Brisbane River flood gauges at 11am AEST (1pm NZT) were sitting around the two-metre mark and were not expected to rise higher than 2.3m, slightly lower than the projected 2.6m peak.
But Quirk said high tides in coming days could see the river rise again.
"I don't want anyone to take their foot off the pedal at this stage. Don't become complacent," he said.
However, 160,000 homes are without power in the city, said ONE News reporter Lisa Owen reporting from Brisbane.
PM to visit flood-hit areas
Prime minister Julia Gillard is set to visit Queensland in the coming days as the federal government steps up assistance to the flood-ravaged state.
A massive C17 transport aircraft has now been added to a fleet of Black Hawk helicopters and two C130 Hercules aircraft evacuating patients from Bundaberg Hospital to Brisbane.
As well 100 defence force personnel have been deployed to the city.
The Hercules are flying patients into Brisbane and returning to Bundaberg with essential supplies, while the huge C17 will transport heavy equipment needed by Queensland Fire and Rescue and the ambulance service.
"Working with the state government, we've commenced the Natural Disaster Relief and Recovery Arrangements which are active in 46 local government areas," Gillard said.
"We are also moving to trigger the Australian Government Disaster Relief Payment, that is first instance money to help people through."
Hardship payments for families have been triggered for Gladstone, Gympie and the Fraser Coast, with Bundaberg to be added once the immediate evacuation emergency is over.
"Deputy Prime Minister Wayne Swan is on the ground in Queensland and integrated into the efforts there and I will be coming to Queensland myself during the course of the week," Gillard said.
- with AAP