As many as a quarter of the toilets across Sydney, the Blue Mountains and the Illawarra are older-style single-flush toilets, which use up to 12 litres a time.

The scheme, to be announced today, is expected to save as much as 500 million litres of drinking water a year across greater Sydney.

The $16 million program aims to replace single-flush toilets with dual-flush models, which do the same job but use only about a third of the water. A half-flush on a dual flush toilet uses three litres of water and a full flush just four litres.

The Minister for Water, Phil Costa, said: "Toilets are the third highest water-using item in the home, behind showers and washing machines." The Government has already targeted showers and washing machines through its Waterfix program.

"The new toilet replacement service is aimed squarely at the last remaining water guzzler in many homes," Mr Costa said.

Sydney Water customers will be able to save up to $200 for every toilet, depending on the new model they choose.

"The initiative has been previously trialled with 440 successful toilet replacements," Mr Costa said. "It proved so popular that 600 joined a waiting list. These people will be given priority access to this program."

Stuart White, director of the sustainable futures institute at the University of Technology, Sydney, said the toilet rebate program should have been implemented instead of the "desalination white elephant".

But the rebate would be useful in country areas, especially those running out of water.

"In the Hunter Valley it is not too late to reverse the folly of the Tillegra Dam," Professor White said. "The Hunter Valley and the lower Hunter will be slugged with the whole cost of the project, which is more than the cost of Sydney's desalination plant, spread across a smaller population base."