The NSW government has been ordered to redo the cultural heritage work included in its proposal to raise the Warragamba Dam wall, documents leaked to the ABC reveal.
WaterNSW plans to raise the wall by 17 metres to allow additional floodwater to be captured and temporarily held back, pending federal approval.
The modification would give residents on the Hawkesbury-Nepean Valley floodplain extra time to evacuate before a controlled release of floodwaters.
However, parts of the Blue Mountains bushland would be inundated, which traditional owners say would destroy sites of significant cultural heritage.
The federal environment department is concerned by the opposition of numerous traditional owners and rejects the state government's claim damage to cultural heritage sites would minimal, the leaked review show.
"The Department disagrees with the estimates that the proposed action will result in only a partial or no loss of heritage value from the initial inundation and the longer term effects of infrequent flooding events," it reads.
Up to 1213 sites and artefacts - which include rock art, sandstone shelters and engravings - could be impacted, it notes.
The review casts doubt over whether the project can proceed without the consent of traditional owners, and orders the state government redo its cultural heritage surveys.
"To accurately understand, assess and mitigate impacts against indigenous cultural heritage values within the project area, the department recommends the Proponent re-conduct comprehensive heritage surveys with full engagement of the traditional owners," the review says.
"This is of importance when considering that the cultural landscape may have been significantly altered following the 2019-2020 bushfires."
The project came under scrutiny after AAP revealed the Berejiklian government was actually planning to raise the dam abutments at each end of the wall by 17 metres, instead of the 14m originally proposed, to allow for future modifications to hold back additional water.
WaterNSW insists the three-metre increase will not change upstream and downstream temporary inundation levels, durations and impacts.