The "stage four" restrictions could be imposed even earlier as dam levels continue to drop sharply, the managing director of the local water authority, Michael Costello, warned in a statement.

Stage four cuts ban the watering of gardens and the washing of cars. Even the fountains in the national capital would have to be turned off.

Costello said the water authority recognised the impact the harsh restrictions would have on the community, but said they were necessary to stop the city running out of water altogether.

The authority has started consulting business and industry groups to ensure the restrictions have a minimal economic effect, he said.

In the past six years, water inflows to catchments in the area have dropped by 63 percent. Last year, they were almost 90 percent less than the long-term average.

Canberra is not alone in facing the full impact of what is called "the big dry".

Neighbouring New South Wales state, of which Sydney is the capital, has warned that several towns face stage four restrictions -- which also ban the watering of sports fields in this sport-crazy country and the use of public showers at beaches.

Australia's second-biggest city Melbourne is also on track for cutbacks after announcing Tuesday that it had endured its driest 12 months on record, receiving less than half its average rainfall.

The government said last month the drought crisis had become so severe that it could be forced to cut off irrigation water to Australia's prime agricultural zone, the Murray-Darling basin.

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