New inquiry into Australian water policy

The Productivity Commission will examine Australia's water reforms in a new inquiry designed to guide governments through the tricky policy area.

The commission will assess adjustments made through the national water initiative and other changes agreed to by state and federal governments.

The initiative aims to increase the water use efficiency, provide investment confidence, guarantee security for rural and urban communities, and help the environment.

Treasurer Josh Frydenberg said the federal government would continue working with states and territories to improve water management.

"A national, unified response at all levels of government is essential to face the current and future challenges of managing water," he said in a statement on Friday.

The commission completed its last regular review of the national water initiative in April last year.