The national water regulator says a boil water notice must stay in place for one of Queenstown's water treatment plants until it is upgraded or switches to another supply.
The Queenstown Lakes District Council last night issued the notice and there are now 17 confirmed cases of cryptosporidium infection in the area.
The water regulator, Taumata Arowai, said it had served a compliance order on the council for its Two Mile water treatment plant.
The plant does not have a protozoa barrier to stop the parasite cryptosporidium from entering the water supply.
The regulator said the Kelvin Heights treatment plant did have a protozoa barrier, but there were doubts that it was working.
It said once it was satisfied this was working then the boil water notice for this supply could be lifted.
Taumata Arowai regulatory head Steve Taylor said it was a complex situation in Queenstown.
"The source of the outbreak is still unconfirmed, but on the information available at the moment there is a material risk as it relates to drinking water. We also know that the Two Mile water treatment plant is non-compliant, creating a risk of contamination that is not being appropriately managed," Taylor said.
"We are working constructively, and with urgency, with the Queenstown Lakes District Council to resolve this issue and give confidence to communities that their drinking water is safe.
"The lack of a protozoa barrier at the Two Mile water treatment plant creates a serious risk to public health, demonstrated by confirmed cases of cryptosporidiosis affecting consumers in the Queenstown drinking water supply distribution zone served by the plant."
Queenstown Lakes District Council has two water treatment plants that supply drinking water to about 44,708 people. The Two Mile WTP and Kelvin Heights WTP take water from Lake Wakatipu and distribute it to different supply zones.
The Water Services Act 2021 (the Act) requires drinking water suppliers to ensure the drinking water they provide is safe, this includes a multi-barrier approach to managing risks, Taumata Arowai said in a statement.
The Drinking Water Quality Assurance Rules require this kind of drinking water supply to have a protozoa barrier.
"We will continue to work with the Queenstown Lakes District Council and other agencies to monitor emerging information about people experiencing illness in Queenstown and the performance of the Queenstown drinking water supply. We will factor this into our ongoing regulatory decisions and discussion with the council," Taylor said.