MIDCOAST Water "strongly oppose" AGL's plan to release recycled water from its Gloucester coal seam gas project into the area's waterways.
AGL's draft water management policy proposes releasing water used during coal seam gas drilling into nearby river systems when wet weather makes irrigation impossible.
The company said its preferred method of management is irrigation, and the discharges of desalinated water would only be made "during periods of high rainfall".
It said the water would only represent "a very small addition, less than 1 per cent, to the average annual flow of the Avon River of approximately 110,000 million litres".
But in a submission to AGL's draft water management strategy for the Gloucester gas project, Midcoast Water states it does not support the company's plans.
"We believe the proposed scheme will be very complex with a number of risks associated with its operation," general manager Robert Loadsman said.
"We strongly oppose the idea of using waterways as transportation routes for recycled water - such water has to be transported by pipelines."
MidCoast Water is also calling for a comprehensive risk assessment to be undertaken and contingency measures designed as part of any extracted water management scheme.
It said the water monitoring plan proposed by AGL was "highly inadequate".
"Water quality monitoring is proposed on a quarterly basis which in our opinion is highly inadequate - we believe the discharge water pond should be sampled much more frequently, and the location of sampling points should be reviewed to adequately monitor the performance of the reverse osmosis treatment," Mr Loadsman said.
However, the company said it is putting the results of water monitoring "right at people's fingertips".
AGL recently launched a public "online water portal" that includes data from 86 surface and groundwater monitoring points across Camden, the Hunter and Gloucester.
"For Gloucester in particular, the community can monitor groundwater before, during and after exploration projects such as the Waukivory Pilot," said John Ross, AGL's manager of hydrogeology.
Protests continued at Gloucester on Friday, and a 48-year-old man was issued with a Field Court Attendance Notice for allegedly refusing to move when directed to do so by police.