Mine owner South32 has said it would pay $103 million to the State Government to offset the loss, but Protect Our Water Alliance spokeswoman Dr Rada Germanos said this was unacceptable.

The Department of Planning, Industry and Environment has recommended to the Independent Planning Commission (IPC) that the economic benefits justified the project.

Nearby at Russell Vale Wollongong Coal has changed its plans from longwall to the less damaging bord and pillar technique, to minimise surface subsidence in the catchment, but South32 plans to use longwall mining.

Read more: Dendrobium plans win over NSW Planning Dept

Protect Our Water Alliance spokeswoman Dr Rada Germanos said was "gobsmacking" the Department (DPIE) supported the expansion.

"[The DPIE report] describes shocking impacts expected to occur from this project, such as subsidence of over 2m within the Metropolitan Special Areas, losses of hundreds of millions of litres of water a year from our drinking water catchment, and irreparable damage to threatened upland swamps," she said.

"By lending support to this project [DPIE] signals that the community's wellbeing always comes second to the profit of mining companies.

"We urge everyone who drinks water to [get] vocal and to oppose this expansion in the upcoming IPC."

While recommending the expansion, the DPIE assessment report admitted the impacts of subsidence "would be significant" in some catchment areas.

It said the impact on the environment, while significant, would be justified by the economic benefits for the region and the state.

The IPC is expected to hold its public hearings to consider the expansion proposal in late November.

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