After days of speculation about negotiations between the Feds and the Victorian Government, confirmation came today that the Commonwealth would be able to buy up to 300 billion litres of entitlement towards its environmental buyback plan for the Murray-Darling.

Such purchases would account for the lion's share of the Federal Government’s plans to secure 460 billion litres of water entitlement from willing sellers by 2014.

Notably the purchases will be over and above those permitted under Victoria's four per cent cap on permanent water trades from irrigation districts.

Victoria also agreed to start phasing out the cap from July 2011 with the view of dumping it entirely by 2014.

The Victorian Government appears to have used negotiations to shore up the Feds support for its Northern Victoria Irrigation Modernisation Project, which includes the controversial north-south pipe.

The Federal Government today reaffirmed its in-principle commitment to provide up to $1 billion towards stage two of the project.

Victoria's 4pc cap has been a major bone of contention in water negotiations with both NSW and South Australia pushing for it to be lifted in recent weeks.

NSW last week put an embargo on further water sales for the environment, claiming it was doing "all the heavy lifting" after the Federal Government announced it had bought $303 million of water entitlements in NSW from the Twynam Agricultural Group.

Victorian Premier John Brumby said retaining the 4pc cap until July 2011 would allow communities sufficient time to adjust to large volumes of water being traded out of their region.

"At the same time, a co-ordinated approach to irrigation modernisation will mean more water can be returned through the buyback to the Murray River and its Victorian tributaries and wetlands," Mr Brumby said.

"Under this agreement, buybacks will be targeted at less productive areas while irrigation infrastructure is modernised and reconfigured to ensure Victorian farmers have a more productive and sustainable future."