The 3,000 megalitre storage will be built west of Bodalla, pumping water from the Tuross River in times of high flow to an off-stream storage and water treatment plant.

The announcement meant council had three quarters of the funding for the $105 million project, after the NSW Government also allocated $25.6 million last year.

Council will fund the remaining $28.2 million.

Eurobodalla Mayor Liz Innes was delighted by the news and said the project would give water security to Eurobodalla residents and businesses for decades to come.

"We are so grateful for this funding. Bega MP Andrew Constance and NSW Water Minister Melinda Pavey have backed this and now the federal government has come to the party," Cr Innes said.

"Council had the forethought to take the bold step of allocating $3.5 million in 2016 to get started on this project and development consent was provided by the NSW Department of Planning back in 2019. Construction of the water pump station is already underway.

"Our water and sewer team has done an incredible job, showing great vision and commitment to get on with the job."

Eurobodalla Council's general manager Dr Catherine Dale praised Cr Innes for her persistent advocacy for the cause.

"Our Mayor collared politicians at every opportunity to keep this important project on their agenda," Dr Dale said.

Construction of the Tuross River pump station is expected to be complete early next year, while the dam site is expected to be cleared in February 2022.

This project will complement council's Deep Creek Dam and water treatment plant in Batemans Bay, providing drought security and bushfire resilience, and increasing capacity for peak holiday water demand and predicted population growth.