There is an increased chance that Haldon Dam near Seddon could breach.
The Marlborough District Council decided to lower the water level in the dam as a precaution after Friday's earthquakes.
During the drainage process, the dam engineer overseeing the site has identified more issues with the stability of the dam, the District Council said in a statement.
Emergency services are on standby in Seddon and nearby residents have been warned, said District Council Assets and Services Manager Mark Wheeler.
In a worst-case scenario, eight rural properties, about a dozen houses and around 20 sections in Seddon township on the south-east side of Starborough Creek could flood if the dam breaches.
Property owners are currently being advised they would get 90 minutes' notice if floodwaters were going to flow into Starborough Creek toward their properties.
A warning note is being delivered to each household this afternoon advising occupants of the increased risk and the possibility of being asked to leave their homes.
Emergency services would move door to door evacuating properties should that be required, Mr Wheeler said.
Extreme flooding is unlikely, according to the engineer's advice.
Heavy weekend rain had slowed the drainage of the dam.