E. coli has been detected in the drinking water network in Karitane, north of Dunedin.
The town is one of three in the area still under a "do not drink" notice after elevated levels of lead were found in the water supply in February.
Dunedin City Council Three Waters group manager Tom Dyer said no-one in Karitane was supposed to be drinking tap water or using it for food preparation while the "do not drink" notice remained in place.
The notice also remains for Waikouaiti and Hawksbury Village.