Sydney Water has cut off funding for water-saving programs, saying their cost outweighs their benefit.
Water usage in Sydney has dropped to 1970s levels, after a decade of urging people to use less.
But critics of the state-owned company's decision, including Labor and the Greens, say the corporation has a conflict of interest.
Labor MP Walt Secord says Sydney Water is putting profits before the environment.
"This is ridiculous. The fact is that their profits are predicated on getting people to use more water," Mr Secord said.
"That's bad for two reasons. On environmental grounds but also it hits the family budget. When families are doing it tough, the last thing they should be doing is paying more for their water and using more water."
Greens MP John Kaye says the decision is short sighted and motivated by the need to justify the construction of the Sydney Desalination Plant.
"We will head back into another drought and then we need people to know how to save water and to invest it in their homes," Dr Kaye said.
"This is all about driving up the profits of Sydney Water and all about disguising the folly of the desalination plant."
Sydney Water managing director Kevin Young has denied the assertions, saying prices are set by the Independent Pricing and Regulatory Tribunal.
"We could have presented the case to IPART, it would have made no difference to our profitability," he said.
"We couldn't demonstrate the case that it was going to be cost effective and we knew it would drive bills up.
"It had really nothing to do with the desal or any outcome for the business in what we make in sales.
"The actual facts are, it had no part in any of the decisions that we make. We always see the desal as something that is our insurance for the future."
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