Bega Valley Shire Council has said Brogo Dam is currently at around 11 per cent capacity and approximately 50 per cent of the catchment has been affected by fire.
WaterNSW reduced water releases from the dam earlier this month primarily for town water supply.
Also, NSW Health advised council the boil water notice for Quaama, Cobargo, Bermagui, Beauty Point, Fairhaven, Wallaga Lake, Wallaga Lake Heights, Akolele and Wallaga Lake Koori Village can be lifted.
The news follows improved chlorine and turbidity levels across the water supply system and recognition from NSW Health for council's management of the system.
A council spokesperson said the lifting of the boil water notice occurs immediately and water from the tap no longer needs to be boiled for any purpose in these areas.
The notice was introduced on December 31 due to the loss of power to chlorination facilities at Brogo due to the impact of the Badja Forest Road fire.
Council's network operations superintendent of water and sewerage services, Bruce Powell, said generator power enabled chlorination to be reinstated soon after the fire on New Year's Eve.
"Water quality from Brogo River remains high and has yet to be affected by the fire in the catchment, being able to stabilbilse chlorination and turbidity adds to our confidence," Mr Powell said.
"There are some uncertainties around what the impact of future rainfall in the catchment will be on water quality at the pump station downstream from Brogo Dam.
"It is likely that there will be an increase in turbidity, which will pose challenges for disinfection."
A boil water notice remains in place for the Bemboka community and council said regular water testing is taking place in consultation with NSW Health.
Looking further ahead, a council spokesperson said the episodic re-introduction of boil water notices may be required over the coming 12 months as dam water levels and the catchment recover.
Council has secured $10million in funding from the NSW government to construct a treatment/filtration plant on the Brogo-Bermagui system which will lessen the need for boil water notices in the future. Planning for that project is ongoing.