The Waikato River and Lake Whakamaru near Mangakino, northwest of Taupo, is looking "greener than the treeline" according to locals.
It's unclear why the water quality is so bad, but local businesses and holidaymakers say it's having a negative impact on their summer, with most avoiding the water.
The lake's levels and inflows are managed by power company Mercury. In a statement, Mercury said their hydro lakes provide an environment for algae blooms when water quality issues combine with warm, settled weather.
But it adds that none of Mercury's operations add contaminants that increase the presence of blooms.
Taupō Mayor David Trewavas visited the lake on Tuesday and spoke with Charlotte Cook.