NSW residents are outraged at the approval of a gold mine they say puts their water supply at risk.

The New South Wales Planning Assessment Commission (PAC) has given conditional approval for the Dargues Reef Gold Mine at Major's Creek, near Braidwood.

But the mine’s location in the upper catchment of the Deua-Moruya river system has concerned locals, as it is an essential water supply for the Eurobodalla Shire.

Stone fruit producers in the Araluen Valley rely on the system, which then flows as the Deua River through the Deua National Park to enter the Batemans Marine Park at Moruya.

The Eurobodalla Shire Council and the new Queanbeyan-Palerang Regional Council have raised major concerns about contamination of the water supply.

The approval comes after the proponent, Diversified Minerals Pty Ltd, gave up on its earlier plan to use a cyanide processing method at the site. The PAC has ordered the company to modify its plans to further reduce risk.

The modified approval notice is also in response to claims the original mine design was based on insufficient weather data, and so the “worst case scenario” outlined was actually understated.

It allows the miner to keep mining to 2025, with the amount of ore to be extracted increasing from 1.2 million tonnes to 1.6 million tonnes.

Diversified say the project could be in production in the first half of next year.

The PAC determination includes advice from the Eurobodalla Shire Council that “the removal of cyanide … takes away most of Council's concerns”.

But the council strongly stressed “the necessity of ensuring that the Moruya River water supply is protected for the community as its objection to the mine is on the basis of potential impacts … to this water supply”.

The NSW Department of Planning and Environment allows for a judicial appeal within three months.