The water services regulator says it will step in if the capital runs short of water for drinking and sanitary needs while water restrictions are in place.
Much of the Wellington region moved to level 2 water restrictions on Wednesday.
Wellington Water said the decision was made due to very high demand putting pressure on the drinking water supply.
The regulator, Taumata Arowai, says it is "actively monitoring" both Wellington Water and its council owner, to make sure it is "ready to act if required" so metropolitan residents can continue to have enough water for drinking and sanitary needs in coming weeks.
The El Niño weather pattern has brought hot dry weather to many parts of New Zealand requiring drinking water suppliers to manage their supplies proactively and carefully, it said.
"This, coupled with Wellington's aging network of pipes and the high amount of water leaking from the network has resulted in the need for Wellingtonians, and people visiting the region, to conserve water as the potential for demand to exceed supply increases."
Regulatory head Steve Taylor said he was concerned about the management of Wellington's drinking water supply.
The regulator met with Wellington Water, Greater Wellington Regional Council, and other agencies late last year to discuss the issue, he said.
"Following this meeting, we've written to Wellington Water [22 December] to set out our expectations. We requested an update from Wellington Water about what actions they, and their council owners, are taking to address the water shortage, demand management, leakage issues, and plans to ensure they can deal with challenges like this in future and pre-emptively mitigate the risks."
Taylor said conversations so far "have been constructive and are continuing".
Under the Water Services Act 2021, the regulator can declare a drinking water emergency to protect public health.
The declaration of a drinking water emergency also makes some broad and flexible powers available to Taumata Arowai, which can require water suppliers and others to take or cease certain actions to manage risks to public health.
"Wellington Water has asked if we would consider using the emergency powers available to us under the Water Services Act 2021, specifically letting them take more water than their current resource consents allow. This is under consideration," Taylor said.
But Taylor said the agency expects the supplier to have exhausted all other avenues first.
"Before declaring a drinking water emergency, we expect the supplier to have exhausted all other avenues to manage the risks to their supply and a clear and serious risk to public health must be established.
"This includes confirming that work on repairing leaks is no longer effective in keeping up with demand."