Two weeks ago, South Australian Premier Mike Rann threatened a constitutional challenge to upstream states over restrictions on water trading, specifically Victoria's 4pc cap on the volume of water being traded out of a region, arguing these were jeopardising the rescue of the River Murray.

The Australian Financial Review reports that after first dismissing the court challenge, Mr Brumby yesterday went on the offensive, saying the cap had been established to allow trading between farmers and not for government exploitation.

"When the cap was put in place, governments weren't in the water-buying business," he said.

"If you allow governments into the market you are going to devastate irrigation communities in Victoria.

"I'm not going to see those communities devastated."

He pointed out that South Australia had signalled at Council of Australian Governments (COAG) meetings that it had no issue with the cap.

In the COAG agreement, the states of the Murray-Darling basin committed last July to discuss with stakeholders that the cap be lifted from 4 per cent cap to 6 per cent by the end of this year. Victoria has insisted this is subject to strict conditions.