National Water Grid can invest in dams only for town water, minister Tanya Plibersek says

Before the change, the Commonwealth could only invest in water infrastructure - including those designed just for town water - if there was an irrigation, agricultural or industry benefit.

To satisfy the criteria, dams originally for town water were increased in size to cater for industry, leading to more expensive and complicated projects that were harder to justify.

READ MORE: Minister 'hates' regions after funding buybacks with cancelled dams

In the recent budget, the framework for the National Water Grid was expanded to include essential town water supplies in regional and remote communities.

The previous framework was too narrow, Water Minister Tanya Plibersek said, and didn't consider the economic benefits increased water security gave regional communities.

"It's a tragedy that in Australia today, there are remote communities that still don't have reliable and clean water supplies," Ms Plibersek said

"Our government wants to fix this issue. Every community deserves clean, safe and reliable water. At the same time, this doesn't detract from the needs of agriculture and industry - we can provide infrastructure to both."

Ms Plibersek said the updated framework would be used to assess all future Commonwealth investment in water infrastructure, including the $900 million in deferred funding for projects such as Dungowan Dam in Tamworth.

"The expansion of the framework does not change the remit that industry or agricultural projects will be funded - for example, in the recent budget we funded Tranche 3 of the 'Pipeline to Prosperity' project in Tasmania which is purely an irrigation project," Ms Plibersek said.

READ MORE: More than $6 billion in dam funding scrapped or deferred by Labor

During the past two years there's been a sizeable increase in the number of people moving to the regions, raising concerns about the pressure being placed on the already strained water security of rural cities, some of which nearly ran dry during the last drought.

Australia's regional towns and cities will grow by one million people over the next decade, even without direct action. The Regional Australia Institute wants to push that number to 1.5 million in an effort to rebalance the nation.

The think tank's chief economist Kim Houghton said water security was one of the unseen backbones of economies, much like road and rail links. But water security also plays an equally important role in a region's social infrastructure.

Recent research showed that livability factors - such as green parks and sporting fields, and access to a public pool or waterway - were just as influential as economic opportunities when deciding to relocate.

"Water is just as important as that core economic infrastructure, because without that water availability then the perception of livability drops and the attractiveness of a place drops....it starts to go into a spiral where it can't attract and retain the workers needed to keep the economy going,"

"We are really realising how much those sort of social infrastructure needs are really underpinning our economic infrastructure these days."