The farm, Pillicawarrina Station, was allowed to develop into a cotton-growing enterprise in the 1980s despite its location in the heart of the internationally-recognised wetland.

As with much of the Murray-Darling Basin, the wetland is in crisis.

The land will be added to the Macquarie Marshes nature reserve system, increasing its size by about 10pc, while 8658 megalitres of water will go back to the environment, ending Pillicawarrina's days as an irrigation cotton farm.

Locals say the farm would have cost at least $10 million.

In a very rare event for the marshes, it was welcomed by all sides of the ferocious water debate that has raged there for decades.

The federal Water Minister, Penny Wong, said the marshes were in poor shape due to a lack of flood water and she was determined to help rescue them "after 12 years of inaction under the previous government".

The NSW Environment Minister, Verity Firth, said, "The Iemma Government has already purchased 15,000 megalitres of general security water entitlement for the Macquarie Marshes and expects to hold at least 30,000 megalitres by the end of this year.

"These entitlements allow us to orchestrate flood events in the marshes that provide a lifeline to the wetland ecosystem."

Richard Kingsford, a wetlands expert with the University of NSW, said the buy was "fantastic", helping bridge a gap between the north and south marsh nature reserves, established in 1900.

"It was always a worry that there was a major irrigation area in the middle of the marshes," he said.

However, restoring the land to its natural state would be a "major challenge".

In the Macquarie, 24pc of surface water has been diverted and the CSIRO has found the average period between important inundation events for the marshes has more than doubled since the construction of Burrendong Dam in the 1960s allowed irrigation to flourish along the river.

Buying Pillicawarrina will not instantly return water to the marshes as its entitlement is mostly general security, and there is a zero allocation of general security water because Burrendong is only 18pc full.