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Cordeaux Dam, which supplies the Illawarra region, has sunk by more than half to be just under 42 per cent full, while the larger Avon Dam has dropped by a third to be 64 per cent full.

"The Illawarra supply network has capacity to supplement the Avon storage by transferring water from Nepean Dam should it be required," the spokesman said.

July was Sydney's driest since 1995, with just 11.2 millimetres of rain collected at Observatory Hill, about one-ninth of the norm. Places such as Abbotsbury and Wedderburn recorded no rain at all, while Canterbury Racecourse had its lowest July total on record, the Bureau of Meteorology said.

The extended dry spell for much of Sydney - and the rest of the state - has triggered a rise in water consumption.

In June, average daily water demand in the city was 1.455 billion litres, 10.1 per cent above the 10-year rolling average, Sydney Water said. For the first half of 2018, water demand has totalled 297 billion litres, the most since 2003.

Average water use is also on the rise, with a per capita demand in June of 324 litres a day - the most since July 2007 towards the end of the Millenium Drought.

Gary Hurley, Sydney Water's manager for networks, said the drying conditions had led to a spike in leaks and breaks in water pipes.

Call-outs to fix leaks had been stable since about 2009 but jumped more than 50 per cent this year to 120-150 a day, compared with a five-year average, Mr Hurley said.

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The instance of leaks is highest in areas with clay soils. As they dry, the soils shrink, leading to pipes moving and sometimes breaking, or connections beginning to leak. Leakage costs about 105-124 million litres a day in the Sydney region, he said.

Water deficiencies are spreading across eastern Australia, especially in NSW. Last month was the state's driest since 2002, and was the seventh consecutive month of below-average rainfall, the bureau said.

"Water captured during the significant rain events of mid- and late-2016 has kept most major dam storages operated by WaterNSW at levels where downstream town and farm water needs can be supplied into 2019, even assuming drought continues," the WaterNSW spokesman said.

Exceptions include Keepit Dam, near Gunnedah, which is just 10.6 per cent of capacity, and Menindee Lakes, near Broken Hill.

"The NSW government is funding construction of temporary earthen banks to hold water to extend supply for the Lower Darling should the river cease to flow by the end of 2018," the spokesman said.