Up to $650 million has been flagged to upgrade the Wyangala Dam as part of a $1bn package announced jointly by the state and federal governments recently.

But some have concerns the dam will take up 90 per cent of the Grabine Park when full.

Wyangala Dam and the Lachlan River system supplies water for irrigation, stock and domestic, town water supply and industrial purposes in the valley.

A statement by WaterNSW spokesperson said the Lachlan Valley has some of the poorest levels of water security and reliability in NSW, having been dramatically impacted by both the Millenium and current droughts.

"Raising Wyangala Dam contributes substantially to improving water and drought security, and flood management capability for the Lachlan Valley," the statement said.

The project entails raising of the embankment and downstream rockfill to add an additional 650GL of storage as well as raising the spillway and intake towers of the dam by 10m.

The increased dam is expected to provide an additional 215GL per annum for general security licence use.

Meanwhile, Bigga grazier Danny Picker said he did not think it would be of much use to local farmers, who could not tap into the dam anyway.

"It is a very good thing to get more water but the fact it is going to take up 90 per cent of the Grabine Park is not good," Mr Picker said.

"As a local, we have all said it is a lot more feasible to build a dam wall higher up in the mountains above the high-water level of the Abercrombie River.

"There is a lot of hilly country that is not used up there for rural production.

"You could back the water up all the way to Tuena and that would only affecting scrub that is not used by farmers."

The dam wall construction is expected to take 2-4 years, dependent on the design.