Illawarra MPs have called for an independent investigation to ensure Peabody Energy's Helensburgh Metropolitan Colliery is complying with environmental guidelines following reports the mine was contaminating drinking water supplies.
On Monday, Fairfax Media revealed iron concentrations in a rivulet feeding the Woronora Reservoir had doubled since the expansion of the mine to levels that exceed Australian drinking water guidelines by 30 per cent.
Member for Wollongong Noreen Hay called for an immediate halt to operations at the mine until further studies could be completed.
"The safety of our community has to be priority," she said.
Mine owner US giant Peabody Energy has denied the Helensburgh mine had breached approval conditions.
"No performance measures have been exceeded and iron concentrations in Waratah Rivulet are below project approval requirements," a spokeswoman said. "Metropolitan Coal takes its environmental responsibilities seriously and we maintain a strong history of compliance."
Ms Hay said if this was the case, the company would have nothing to fear from an investigation.
"We can't throw our hands up in the air and ignore things that would put our community at risk," she said. "So if what the mining company is saying is true and they don't believe there is a problem, then they should have nothing to fear."
This year has been a difficult one for Peabody in Australia, with the company encountering protracted industrial action at its Helensburgh Colliery, announcing the closure of its Wilkie Creek Mine in Queensland and shedding jobs across its other operations around the country.
Member for Keira Ryan Park said although it had been a difficult year for mining in the Illawarra, it was vital for companies to comply with environmental regulations.
"These concerns are worth having a look at, it's important any mining company complies with legislative requirements and if the company hasn't done that then communities have a right to be concerned. Mining plays an important role in our region ... [but] it's equally important mining operators do so in accordance with government legislation."
Member for Kiama Gareth Ward said he expected the NSW Environment Protection Authority would conduct an investigation.
"I take any claim about the contamination of our drinking water supply very seriously ... we need to ensure our water security. The EPA, which is independent of government, must conduct an investigation to resolve this matter and take the action that is appropriate," he said.