"It's also a moral thing, in that it has just been such a wonderful marketing job by the beverage industry, selling people something they can have for free," said Huw Kingston, who owns a combined cafe and bike shop in the town.

Beverage companies truthfully maintain that bottled water is a healthier alternative to fizzy soft drinks. But the plastic bottles are made from crude oil and most are thrown away rather than being refilled.

In 2006 the bottled water industry caused the release of 60,000 tonnes of greenhouse gas, a study by the NSW Department of Environment and Climate Change found. Since then sales have increased; last year Australians spent about $500 million on bottled water, a 10 per cent increase on the previous year.

Jon Dee, director of the environment group Do Something!, says the campaign is similar to the decision to ban plastic bags in Coles Bay, Tasmania, in 2003.

"The community reaction in Coles Bay was very good, and I hope that if people do see the benefits of having free filtered-water fountains in Bundanoon, then they will go for the alternative." Under the proposed ban, filtered-water fountains will be installed on the main street so people can fill bottles free.

Other places in Australia and overseas have discouraged the sale of bottled water, but Bundanoon is thought to be the first to move towards an outright ban.

The catalyst was a proposal by the Sydney company Norlex Holdings to build a water extraction plant in the town. It was initially turned down after sustained objections from residents, but Norlex appealed, and the case is before the NSW Land and Environment Court.