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Vic govt says it acted on agency failure

Victoria's water minister has defended how the coalition dealt with its water agency, which repeatedly breached government policies.

Peter Walsh said more would be done on top of changes already made to the administration of the Office of Living Victoria (OLV).

He told parliament on Wednesday he had been informed at various times over the past couple of months that action was being taken on OLV.

"When issues were identified they were fixed," Mr Walsh said.

Labor is demanding answers from the government after an ombudsman's report, released on Tuesday, which said OLV put procedures and principles second to urgency.

The report found there was an ongoing failure by OLV to comply with government procurement policies and conflicts of interest were poorly handled.

"This is a scathing report," Opposition Leader Daniel Andrews told reporters on Wednesday.

"The minister was warned. He did nothing about it. Answers need to be provided to this question."

Mr Walsh has admitted mistakes were made in the running of OLV.

He has said the government would be adopting all of the ombudsman's recommendations, including an audit of OLV's finance management.

The agency is now being run out of the Department of Environment and Primary Industries.