A Rotorua Lakes Council committee has voted unanimously to return Taniwhā Springs to its traditional owners.
The springs are of major cultural significance to Ngāti Rangiwewehi and are regarded as precious taonga.
They are believed to be the place where the iwi's life springs from, and the home of the taniwhā Pekehaua, a central figure in local traditions.
Taniwhā Springs were taken and vested in the Rotorua County Council for public water use under the Public Works Act in 1966.
In the 2012 Ngāti Rangiwewehi Settlement, the Crown acknowledged the taking of the land was felt by the iwi to be the greatest grievance they bear against the Crown.
If the full council endorses the recommendation in late August, the council will continue taking water from the Springs until its consent expires in 2018.
It is also working with iwi to assess the possibility of continuing to use the springs in a culturally appropriate way, and is investigating alternative water sources.
