The Bay of Plenty Regional Council says the decontamination of a canal near Whakatane could be delayed if government funding doesn't come through.
The Ministry for the Environment says the Kopeopeo canal is one of the Government's highest priority sites for remediation.
Between the 1950s and late 1980s, stormwater containing waste from a now disused sawmill in Whakatane was discharged into the canal resulting in a build-up of toxic dioxins in its sediment.
A project to remove the contaminated material was developed and included in the regional council's 10-year plan which was adopted in June last year.
At the time, the Government agreed to pay half the $3 million cost.
However the council's pollution prevention manager, Nick Zaman, says the cost has risen to $4.4 million and an extra $700,000 is being sought from the ministry.
The ministry is considering the application.
An eastern Bay of Plenty dairy farmer says if decontamination is further delayed it will become a major economic problem for some farmers.
Scottie McLeod said the drainage channel hasn't been cleared for of years because of the dioxins and as a result the water table rises too high in winter for grass growth.
It is not yet a serious economic issue but could become so if the problem is not solved, he says.
Bay of Plenty Regional Council has lodged a resource consent application for the decontamination project which is open for public comment.