The Tasman District Council says it is facing a critical hurdle in its bid to build a large dam, now that nine hectares of Crown land it needs is no longer available.
The council and a company, Waimea Irrigators, are partners in the estimated $82 million project in the Lee Valley south of Richmond.
The council said it had a prior agreement with the Department of Conservation to buy the Crown river bed and margins for the dam, but the Department said going ahead with the transfer would put the Crown at risk of significant legal challenge.
Council chief executive Lindsay McKenzie said the problem lay with the mechanism that was to be used to transfer the land from Crown to council ownership.
"We have some issues with the position that the Department has taken in relation to the use of the Public Works Act which we will be taking up with them."
He said it came as a surprise to the council and was not consistent with earlier advice from the Department, but it was a relief that the precedent set by the Ruataniwha scheme did not apply to Tasman.
The Ruataniwha water storage scheme in central Hawke's Bay was all but killed off last year by a Supreme Court ruling that a land-swap required to free up conservation estate land required for the scheme had not been legal.
Mr McKenzie said the land in the Mt Richmond Forest Park was quite fundamental to the Tasman project, but the current glitch would not delay a process under way now to sell water shares to raise funds for it.
Waimea Irrigators' capital raising offer was due to end late March but was extended to 5 April.
Mr McKenzie said the council needed to consider the possibility there would be a delay in reaching close, and therefore the start of construction.
"A delay beyond July will affect the project and the council's long term budgeting, and possibly the water management regime in the catchment," he said.
Mr McKenzie said the matter was more statutory than political and that Tasman is now re-assessing its options.
"The hope that I've got is that they (DOC) are open to a further conversation with us about alternatives to the mechanism that was proposed," Mr McKenzie said.
He hoped to meet with DOC in Wellington.
"The plan is to seek a face-to-face to talk about our response and whatever alternative mechanisms might be on the table."
Mr McKenzie, who is soon stepping down from the the council, planned to get a result before his departure.