Mining is set to extend beneath the Woronora drinking water reservoir for the first time, as Peabody expands the reach of its Metropolitan colliery.
Dr Nick Southall of the Protect Our Water Alliance said the long-term risks were too great.
"Peabody and the Metropolitan mine are facing an increasingly uncertain financial future, as was shown during the mine's recent months-long shutdown," he said.
"Mining under the water catchment must cease before any more damage is done."
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A Peabody spokeswoman said the company had modified its mine plans to provide extra protection to the Woronora Reservoir, and understood the community's expectations on the water catchment.
"Our strong environmental record was recognised by the 2019 Independent Expert Panel Report into Mining in the Catchment which found that there has been no connective cracking between Metropolitan's underground mining operations and the surface, and therefore no loss of water from the Sydney water catchment," she said.
Kaye Osborn of the Protect Our Water Alliance said the lasting effects could not be predicted adequately.
"Similar mining beneath the Cataract Reservoir in the early 1990s caused subsidence and ground movement that was continuing 25 years after the mining ceased," she said.