Level two water restrictions will kick in across the Lower Hunter region at the end of January as dams fall to the lowest levels seen in almost 40 years.
Melinda Pavey, the Minister for Water, Property and Housing, announced on Monday afternoon that residents in the Lower Hunter - inclusive of Port Stephens - would move from level one to level two water restrictions from January 20, 2020.
It will be the first time level two restrictions have been in place since the 1980s drought.
"The Lower Hunter's dams are declining at a rapid rate of about one per cent each week due to a lack of decent rainfall and high evaporation," Mrs Pavey said.
"While there is a possibility the region could receive rainfall between now and then, we are preparing early to provide Hunter Water customers with certainty. We are conscious of Christmas and the school holidays fast approaching."
The announcement comes as Hunter Water's storages drop to 57.5 per cent capacity (on Monday).
The last time levels fell below this total was in July 1980.
Under level two water restrictions, outdoor watering is limited to 15 minutes every second day, vehicles and buildings can only be washed with a bucket and showers are limited to four minutes.
Hunter Water's executive drought lead Darren Cleary said he was hopeful level two restrictions would build on the significant savings already made by the community.
"Since the start of level one water restrictions, our community has used 17 per cent less water than what we expected, given the weather conditions - the average water use of approximately 62,000 households over the same period," Mr Cleary said.
"We've been working closely with our large business customers who use more than 10 million litres of water a year to develop Water Efficiency Management Plans. This will soon be expanded to our smaller business customers as they start preparing their own plans."
Lower Hunter residents moved to level one water restrictions on September 16.
The level one water restriction guidelines include: all hand held hoses must have a trigger nozzle, outdoor watering is permitted before 10am and after 4pm, no hosing of hard surfaces such as concrete, paths and driveways, no sprinklers, and only wash vehicles with a bucket, trigger nozzle hose or pressure cleaner.
Fines for breaching water restrictions can be up to $220 for individuals or sole traders and $550 for businesses or corporations.
Hunter Water said since restrictions came into effect it had investigated 670 alleged breaches of the level one restrictions but had yet to issue a fine to an individual or businesses.
Residents are encouraged to report suspected water restriction breaches through the Hunter Water website.