COAL-seam gas company Metgasco has been fined by the State Government for dumping waste "produced" water at the Casino sewage treatment plant.
Richmond Valley Council has also been warned by the state's environmental watchdog for allowing the dumping contrary to its license to operate the plant.
The council has been instructed to stop accepting water from the company.
The unlawful dumping was outlined in a letter from the Environmental Protection Authority to the NSW Environmental Defender's Office dated June 7.
It detailed Metgasco dumped more than 1.3 million litres of waste water at the plant in the 10 months to March.
It also detailed the company was told it cannot dump water held in storage ponds at a sewage plant and that it is unlikely to get government approval to do so.
But Metgasco has failed to see what all the fuss is about.
In a statement, chief executive Peter Henderson said that all of the company's operations, including the management of "produced water", was approved by "government authorities".
He also said the discharge was safe.
"We have independent technical advice that produced water ... can be discharged safely to the local sewage treatment plant," he said.
He also said the company was reviewing a range of long term water treatment options.
Council general manager John Walker said the council had misinterpreted its license conditions, but he said the council alerted the EPA after concerns regarding the practice were raised with the council.
"We did it, we thought it was okay, it's not okay so we won't do it any more," Mr Walker said.
Lock the Gate Alliance's Boudicca Cerese said the breach was evidence of an "abysmal failure of the current system to properly manage this harmful industry".
But State Clarence MP Chris Gulaptis disagreed.
"(The enforcement action) does shows we have checks and balances in place," he said.
"The matter is with the authority and if anything illegal is being done it is up to the authority to investigate thoroughly before they determine what course of action they take, " he said.
An Environmental Protection Authority spokeswoman said "no environmental harm or disruption to the sewage treatment process" resulted from the breach.
A spokeswoman for the minister for resources and energy, Chris Hartcher, said the Government was considering the possibility of further enforcement action.