Legislation setting out the first part of the government's water services plan has passed its third reading in Parliament.
The Local Government (Water Services Preliminary Arrangements) Bill requires councils to develop water services delivery plans over the next 12 months, to show how they intend to deliver financially sustainable drinking water, wastewater and stormwater services.
The legislation also streamlines consultation and decision-making processes for local bodies to set up council-controlled organisations, in order to access financing.
Local government minister Simeon Brown said he expected councils would work together on joint arrangements to support financial sustainability.
"Given the scale and urgency of challenges facing water services for communities across the country, I expect councils to develop and implement plans for financially sustainable water services as soon as possible."
The legislation also meant the water services regulator Taumata Arowai would no longer have to consider the hierarchy of obligations under Te Mana o te Wai or the National Policy Statement for Freshwater Management when setting wastewater standards.
The economic regulation of water services, and the minimum requirements for water service providers, will be established in another bill, set to be introduced by the end of the year.
The legislation passed without the support of opposition parties.