Environmentalists are warning that irrigators could use an extra $1.7 billion in federal funds pledged for the Murray-Darling Basin as a giant cash dispenser.
Prime Minister Julia Gillard on Friday promised the money to deliver an additional 450 billion litres, or gigalitres, to the ailing river ecosystem.
The announcement has so delighted South Australian Premier Jay Weatherill that he has withdrawn the threat of a High Court challenge against a new management plan for the basin.
Queensland Premier Campbell Newman was less enthusiastic, branding it 'ominous and suspicious' and saying it wasn't resolved in the eyes of Queenslanders.
By investing the cash in farm infrastructure and water-saving projects, the government hopes a combination of increased flows and better river management will meet ecological goals without hurting basin towns.
The new approach could be the blueprint the government needs to strike a deal with the basin states and finalise a management plan by the end of the year.
The Australian Conservation Foundation said the plan to return 3200 gigalitres to the river system was a major improvement on the 2750GL scenario proposed in a draft plan, but still a long way short of the 4000GL it insists is needed for the basin.
It warned Mr Weatherill to go over safeguards in any agreements closely to ensure they were 'rock solid and watertight'.
'If they're not, this extra money will just be used as a giant ATM machine by irrigation companies again,' foundation spokesman Paul Sinclair told AAP.
Opposition water spokesman Barnaby Joyce says the coalition will need to see the details before it commits support, but he questioned how the government would fund its promises and protect the 2.1 million people living within the basin.
'(Environment Minister) Tony Burke has to answer today exactly how he will commit to only recover new water in a way that does not cause social and economic harm,' he said in a statement.
The coalition's Murray-Darling Basin spokesman Simon Birmingham cautiously welcomed the announcement, but urged Labor to follow up its 'headline-grabbing promise' with real action.
Most of the $1.77 billion will be earmarked for water recovery projects on farms instead of buying back water from irrigators, a strategy staunchly opposed by many in Queensland, NSW and Victoria.
Up to $200 million will be used to remove river constraints, such as low-lying bridges and undersized dam outlets, to help free the additional 450GL for the environment.
It follows a model proposed earlier in October by the Murray-Darling Basin Authority.
The basin plan will be funded from existing government resources and cash set aside in this week's mid-year economic outlook.
Legislation to set up the special account for the plan is expected to be introduced to parliament by the end of the year.