South Australia has dropped its legal challenge to Victoria over trading caps in the Murray-Darling Basin.


The South Australian Government launched a High Court challenge in 2009 arguing Victoria's restrictive four per cent cap on water trading was an unconstitutional imposition on trade, and had also successfully sought to abolish another 10 per cent cap that sat above the four per cent cap.


However the recent easing of restrictions has allowed the negotiations of a mutually acceptable settlement and Victoria has reaffirmed its agreement to lift the four per cent annual cap by June 30, 2014.


Victoria has also agreed with the Federal Government to allow water to be bought for environmental purposes and will let South Austraila buy water to meet any potential shortfall in critical human needs supply.


SA will also have permanent rights to store water in upstream storages such as the Hume and Dartmouth dams.