The NSW Government is committing $850,000 to exploring infrastructure options for a pipeline between Carcoar Dam and Lake Rowlands.
Minister for Regional Water Niall Blair said a pipeline could provide improved water security for the region.
"The Lachlan Valley was severely impacted by the millennium drought and its enclosed water sources mean water security and reliability can drop dramatically during dry periods, as we are currently seeing at the moment," Mr Blair said.
"We know how precious water supply in the Lachlan Valley is and we want to make sure the community has a secure and reliable water supply in the future.
"Our next step is to deliver a business case which will explore the engineering and design elements, environmental considerations and estimated cost.
"This announcement is part of a broader Lachlan Valley Water Security Study which will be announced in the coming weeks."
A 12-kilometre pipeline would transfer surplus water from the Central Tablelands Water-operated Lake Rowlands Dam to the larger Carcoar Dam, which is operated by WaterNSW.
A pipeline would provide water security for towns including Blayney, Carcoar and Canowindra as well as water users within the Belubula Valley.
Member for Bathurst, Paul Toole said the community have been crying out for long-term solutions and this was the next step in ensuring water security for the region.
"The Lachlan Valley covers an area of around 90,000 square kilometres. From a single water supply, it supports a number of urban centres, agriculture and industry, and key environmental assets," Mr Toole said.
"We’re looking to this region’s future by exploring long-term water security solutions for the communities, irrigators and farmers, and the environment."