The Government is denying a promise to wind down irrigation schemes has been broken with the funding of a new dam project in the Wairarapa.

But the Green Party says it's still undecided about whether to back the plan.

Regional Economic Development Under-Secretary Fletcher Tabuteau this week announced the Government would be putting $7 million towards a new water-storage scheme near Masterton being set up by Wairarapa Water.

The money - which is coming out of the $1-billion-a-year Provincial Growth Fund – aims to help the plan move towards construction, with hopes it would take three years to finish from 2022 at a cost of up to $120m (with the remaining funds to be sought from investors).

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The funding comes on top of $800,000 the Government earlier put into the scheme for community engagement and consent planning.

Announcing the deal, officials and organisers have avoided using the word "dam".

Technically, the project won't dam a river, but instead put a dam wall at the end of a valley to store water from nearby sources. The site would hold up to 18 million cubic metres of water and be able to irrigate about 10,000 hectares.

"Once finished, this project will provide a resilient freshwater supply for the area, leading to many benefits, such as providing support to sustainable agriculture and horticulture industries," Tabuteau said.

The plan has the backing of iwi, the three local councils and Greater Wellington Regional Council. Federated Farmers hailed the funding decision as "outstanding news".

But Greenpeace agricultural campaigner Gen Toop says the Government is reneging on a promise move away from irrigation.

The proposed reservoir would be able to potentially irrigate about 10,000 hectares. Image / Supplied
The proposed reservoir would be able to potentially irrigate about 10,000 hectares. Image / Supplied

"We're really disappointed in the Government's decision. This is really a blow to the thousands of people who campaigned to stop big irrigation and clean up our rivers and it's going counter to what the Government promised," she said.

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"The Prime Minister promised New Zealand she would lead a government that would clean up our rivers, yet they've just announced a new irrigation scheme that they're funding."

Toop said there was a risk the project would lead to increased dairy intensification in the area.

Regional Development Minister Shane Jones strongly rejects the claim.

"The Government is not fuelling large-scale, industrialised irrigation. It is future-proofing provincial communities who are desperate," he said.

He also accused environmentalists of hypocrisy over water shortages.

"You can't preach an apocalyptic climate change vision and not seek practical ways of adapting to the changing climate.

"These are very modest and manageable schemes."

In a statement, Green Party Wellington regional councillor Thomas Nash said the party was still deciding on the proposal.

"The Greens believe local communities should explore options that ensure the innate value of water is protected whilst best preparing us for climate change," Nash said.

"We'll be investigating whether the current option put forward ensures water resilience and protection within the context of climate change adaptation, as well as care for our rivers and effective land use."

The party has not yet replied to questions about whether it had been consulted on the project before this week's announcement.

Labour's confidence and supply agreement with Green Party states it will "wind down Government support for irrigation".

But when Finance Minister Grant Robertson announced the start of the wind-down in 2018, he noted smaller-scale water projects would still be considered on a case-by-case basis through the PGF.

Regional Economic Development Under-Secretary Fletcher Tabuteau this week announced the project. Photo / Supplied
Regional Economic Development Under-Secretary Fletcher Tabuteau this week announced the project. Photo / Supplied

A spokesperson for Tabuteau's office said there was a distinction between water storage projects and irrigation schemes, with the Government only funding the former.

"Any proposed water-storage projects would be expected to meet criteria demonstrating strong alignment with the objectives of the Provincial Growth Fund, and in particular must be environmentally sustainable and deliver benefits across a community."

It would also have to pass environmental checks under the Resource Management Act and consent requirements.

Wairarapa Water chief executive Robyn Wells says the project was significantly more than just an irrigation scheme and only part of the water would end up on dairy farms.

"What this is primarily about is filling a gap in reliability. Today there are about 12,000 hectares of irrigation in the area where this water can go. As the climate changes ... the farmers will have less water," Wells said.

"It's not about creating a whole lot more intensive use of land."

Environmental regulation and community input in the area would put reins on any potential environmental degradation, she said.

"We expect that, absolutely, people will move to different land use, but the rules around dairy intensification will limit what will happen."

Work on a secure water source in the Wairarapa has been ongoing since 2010.