Wollongong's Lord Mayor has also warned that the effects will be seen in the city's parks and reserves.

From December 10 people in the Illawarra - along with Sydney and the Blue Mountains - will only be able to water their gardens or wash their car with a watering can or a bucket, and only between 4pm and 10am.

Pools can only be filled for 15 minutes a day, and only with a spray nozzle on the hose.

Hosing hard surfaces is not permitted, but commercial car washes are allowed.

The rapid decline in dam levels meant the usual drought trigger had to be brought forward, but Ms Berejiklian said.

"Usually, we would expect to have Level 2 water restrictions come into effect when dam levels reached 40 per cent," she said.

"But given the rapid rate of decline of our dam levels we have decided to enact the next level of restrictions sooner than planned.

"We're experiencing one of the most severe droughts on record and we expect introducing Level 2 restrictions to save 78.5 gigalitres of water per year."

Dam levels statewide have now dropped below 45 per cent, with Cataract Dam above the Illawarra Escarpment at just 26.4 per cent on Thursday.

But WaterNSW figures show that from January to August this year, water supplied (and used) to Sydney Water each month has been between five per cent and eight per cent higher than the average for the five years previous.

Only in September did this drop - to four per cent above the average.

Wollongong Lord Mayor Gordon Bradbery said people needed to adjust their mindset for the good of all.

"It's a big readjustment to just being able to get out there and put the hose on," he said.

"But I think it's also going to impact heavily on our council reserves - our ovals and parks and things like that - we're not going to be able to maintain them at the level when the grass needs to be water.

"So that's a major challenge we're going to have to confront.

"Particularly with some of those parks and ovals, they need to be prepared for next year's football season. A lot of them are browning off because of the lack of rain, so it's not giving the chance for our playing ovals and pitches to really recover."