It was revealed last week that the water authority had discharged 7000kg of nitrogen and 5500kg of phosphorus into the lake from its Dora Creek sewage plant between June 2007 and September last year.

The matter came to light after Max Tunbridge noticed water running across his Boonal Road property through sensitive wetlands and into the lake.

Mr Tunbridge believes the effluent run-off has killed mangroves and damaged reeds and other vegetation on his land.

But he said the lake was his concern and his outrage was directed at the NSW Department of Environment and Climate Change for licensing the dumping.

DECC sells licenses to companies, including Hunter Water, to discharge treated effluent into the lake and fines licensees when they exceed licence limits.

"It's a licence to pollute. How ridiculous is that statement when you think about it," Mr Tunbridge said.

"My argument is not with Hunter Water. My argument is with DECC."

"They're collecting the money, they're the big winners, and the worse you [as a licensee] pollute, the more they get."

Mr Tunbridge added: "There's dead mangroves and dying mangroves everywhere," he said of his property.

"If I did that it's a $20,000 fine . . . but for them it's under the licence, nobody cares."

Lake Macquarie state member Greg Piper said he would inquire into the use of the licences locally.

"The community should know what the licences are. They should be able to challenge some of the need for them and that the authorities are up to date with what the needs are," he said.