The water supply system is needed for the area to support projected future growth in Bungendore and the Palerang region, with the area expected to accommodate 9,000 additional residents by 2036 according to the latest population projections.

"An improved water supply system is essential in order for the area to grow and develop in a sustainable manner, so this is great news for residents of Bungendore," Member for Monaro Mr Whan said.

"The project will involve the construction of a new water supply system including water treatment plant, storage reservoir and transfer pumping station for the Bungendore area.

"This is part of the Keneally Governments $179 million in interest free loans or 37 projects across 33 high growth council areas through the Local Infrastructure Fund." Steve Whan said.

Minister for Planning Tony Kelly said "Projects are expected to be completed within 18 months of the loan being issued and the loan repaid within 10 years."

The water supply is to be sourced from the Currandooley acquifer.

Mr Kelly said that "Applications were evaluated by an independent assessment panel and had to meet a set of strict criteria, including the project facilitating development of new housing, employment and is value for money, and the council has the capacity to deliver the project."

Mayor Walter Raynolds said "It just shows what a well run Council can do."