The NSW planning commission has rejected the proposed expansion of a coal mine beneath Sydney's drinking water catchment.

BHP spinoff South32 sought permission to extract an additional 78 million tonnes of coal from its Dendrobium mine, but that bid was shot down by the NSW Independent Planning Commission, which found that the risk to the environment was too high.

“The longwall mine design put forward by South32 does not achieve a balance between maximising the recovery of a coal resource of state significance and managing, minimising or mitigating the impacts on the water resources and biodiversity and other environmental values,” the commission said.

“The level of risk posed by the project has not been properly quantified.

“Based on the potential for long-term and irreversible impacts — particularly on the integrity of a vital drinking water source for the Macarthur and Illawarra regions, the Wollondilly Shire and metropolitan Sydney — it is not in the public interest.”

Water NSW had raised concerns about the plan to pull out up to 5.3 megalitres of surface water per day for the next 30 years. The commission said South32 did not do enough to address the concerns.

South32 says the rejection means fewer jobs in NSW and less revenue for the state government. It says it will continue to work on new plans.