This is not the dam you are looking forA New South Wales water authority says it has detected pollution in one regional dam, kicking up a stoush in several political arenas.

Hunter Water says it detected pollution from manure and composting by Port Stephens Gardenland in the Grahamstown Dam.

The business has been slammed for reportedly operating against the conditions of its development approval (DA), but it says it has lodged another one with the council.

Councillor MacKenzie told reporters this week that the issue had been blown out of proportion.

“They've got approvals for garden soil and pine bark and things,” he said.

“They haven't got approvals for composting, which is part of their business.

“It has been part of their business for decades.

“They might not have known the rules - they haven't got a DA for composting.

“So they have put in an application to council but, as far as I'm concerned, I'll be supporting them because I don't think it's a big environmental or pollution problem.”

New South Wales Labor has accused the Baird Government and Port Stephens Council of failing to act, but their opponents say they are just trying to score points.

“This is an extraordinary situation where you have Hunter Water ringing the alarm about pollution of a critical drinking water catchment and the Baird Government and Port Stephens Council have done nothing,” NSW Labor's water spokesperson, Peter Primrose, said.

“You have a company getting away, unquestioned, over allegations of pollution.”

Mayor MacKenzie said it was mere “political interference”.

“[Port Stephens Gardenland staff] are hard working people, I've known them for many, many years.

“They mind their own business, they keep their nose clean, and they are trying to make a living.”