The state government has begun "preliminary planning" to expand the Kurnell desalination plant as Sydney dam levels continue to drop at record pace.
The plant is producing 250 million litres of water a day at present, but was constructed in such a way that capacity can be scaled up to 500 million litres per day.
Minister for Water, Property and Housing Melinda Pavey said the state was experiencing the worst drought on record and the desalination plant wad playing a significant role in maintaining Sydney's water supply.
"Sydney storages have dropped from around 90 per cent to 50 per cent capacity in approximately two years, with Sydney's dam levels currently at 50.3 per cent," she said.
"The desalination plant reached full production at the end of July - two months ahead of schedule.
"The plant is now producing an average of 250 million litres a day - approximately 15 per cent of Sydney's supply."
Mrs Pavey said since the plant was turned on, the current dam depletion rates had improved by around 0.2 per cent per week.
"By undertaking this planning work, should the drought worsen and water levels continue to drop, we will be ready to act immediately to increasing water supply," she said.
NSW Shadow Treasurer Walt Secord and NSW Shadow Minister for Water Clayton Barr gave their in-principle support to a draft plan to expand the desalination plant.
Mr Secord and Mr Barr said they have been advised that initial plans are being finalised and a decision by the Berejiklian Government was expected in April 2020.
They said NSW Labor wanted to see the modelling on the costs of the expansion, but was willing to work with the government.
"Water security is above partisan politics," Mr Secord said.
"We want to be responsible and helpful on such an important matter."
Mr Barr said, "With storage levels dropping across the State, we are surprised that it has taken the Water Minister Melinda Pavey this long to act - but we will be seeking a briefing on the plan and providing our support."
"The Sydney desalination plant was set up by Labor as an insurance plan and it was originally attacked by the Liberals and Nationals," Ms Barr said.
"Today, we see that it is necessary - and we now know that it is necessary."
""With our growing Sydney population, it is important that we have secure water supply and the infrastructure behind it as we live on the driest inhabited continent in the world."
The state government is to announce a major upgrade of the Kurnell desalination plant, enabling it to produce twice as much drinking water.
Water Minister Melinda Pavey is due to make an announcement at the plant on Sunday.
The government is concerned at the ongoing drought and a faster drop in dam levels than during the last drought.
The $2.3 billion desalination plant was restarted in January and has gradually worked up to full production of 250 million litres of drinking water a day.
However, it was constructed in such a way that capacity could be scaled up to 500 million litres per day for Sydney's future needs.
Sydney dam levels are falling at 0.4 per cent a week and the total storage was at 50.4 per cent on Saturday.
Level 1 water restrictions were introduced on June 1, two months early.