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Worst drought in 100 years threatens to dry up rivers in Australia, forewarn environment experts.
At a meeting in Canberra, leaders approved a plan which will see a reduction in water drawn for irrigation and a new national water commission, BBC reported.
According to the report, although Western Australia refused to sign the deal, Australia's Prime Minister John Howard called it an historic agreement.
"This has been a tremendous day for the future security of water supply in this country," Howard said after the Council of Australian Governments agreed to the plan.
Australia is the world's driest continent, reported BBC, and the 10-yer plan could help the country use water more efficiently by balancing both environmental concerns and community needs.
The plan will target to revitalize the Murray-Darling river basin, which has been affected by the excessive irrigation and a lack of rain. The Murray-Darling river is one of the most important water courses in the country and stretches across four states in south-eastern Australia.
"The big challenge is to save the stressed, over-irrigated inland areas of this continent," said New South Wales state Premier Bob Carr.
A national water commission will be created to oversee a national water market, which will regulate water used by agricultural industries, BBC reported
Farmers, whose export markets are worth billions of dollars, are to be compensated for cutting back on irrigation.
BBC also reported that the Western Australia Premier, Geoff Gallop, refused to sign the deal, arguing that it did nothing to address the problems faced by his region.