The NSW Department of Planning has recommended approving the expansion of Eraring Power Station's 35 million tonne coal-ash dam by 5 million cubic metres.
The NSW Environment Protection Authority has also given conditional approval of the expansion despite consultants flagging potential "major hazards".
The decision comes as a NSW Upper House committee continues its inquiry into the costs of remediating NSW coal ash repositories such as the Eraring and Vales Point power station ash dams.
The Lake Macquarie and Central Coast residents group, the Coal-ash Community Alliance (CCA), said it was "astounded" by the recommendation to expand the Eraring ash dam in light of the inquiry.
Considering the recent closure of the Myuna Bay Sport and Recreation Centre due to threats of the dam walls failing in the event of an earthquake, it was "obvious that the environment watchdog, the NSW EPA is not doing their job", the group's spokeman Gary Blaschke said.
CCA secretary Ingrid Schraner said Origin's 2019 Sustainability Report outlined that while the coal-ash re-use rate had increased to 35 per cent, the ash production increased even more.
"So, by 2032 we could well be subjected to more than an additional 15 million tonnes of coal-ash," she said.
Mr Blashcke said during CCA's recent meeting at Myuna Bay with NSW Environment Minister Matthew Kean, the minister was concerned about the contractual implications of the sales agreements with both Eraring's operator Origin Energy and the operators of Vales Point power station, Sunset International Pty Ltd.
"The dust had not settled on Minister Kean's investigations after that meeting and the Upper House inquiry into toxic ash waste had barely started, but behind the scenes the planning department recommends approval for the dam's expansion to the Independent Planning Commission," Mr Blaschke said.
He said it was a "sad day for the region" when the planning department doesn't talk with the minister or wait for the findings of the inquiry before recommending the ash dam expansion be approved.