A cabinet meeting in Adelaide yesterday approved the purchase of water rights of entire farming communities and a Commonwealth-state initiative in which NSW and Queensland properties with large water entitlements could be purchased.

The relevant state government would keep the property, while the water allotment would be sent down the river.

The Government also succumbed to a demand by the new South Australian senator, Nick Xenophon, for an independent audit of where all the water is stored along the Murray-Darling Basin.

Senator Xenophon is one of the senators holding the balance of power. This week he flexed this muscle by announcing he would block the Government's FuelWatch legislation, slammed the measures as inadequate.

He believes water should be compulsorily acquired from irrigators in the eastern states.

"You need to look at that. We need to pull out all stops," he said.

Senator Xenophon does not trust the storage figures used by the Murray-Darling Basin Commission because they are provided by the states, which have a vested interest in hoarding water.

The Government would not embrace compulsory acquisition but did agree to an independent audit of all private and public water storage.

Mr Rudd's $12.7 billion water plan includes a sum of $3.1 billion for buying back water. Only $50 million has so far been spent buying back 35gigalitres in entitlements. Cabinet agreed to accelerate the process and extended from $350 million to $400 million the buyback of selected water entitlements from Queensland to the Menindee Lakes near Broken Hill in NSW.

There would be another $80 million to buy out irrigators in South Australia.

The buybacks would be voluntary and, if possible, entire communities targeted.

"Where you have defined and discrete irrigation communities, the Commonwealth is prepared to step in and buy back the entitlements from that entire community," Mr Rudd said.

This alarmed Andrew Gregson, the chief executive officer of the NSW Irrigators' Council.

He said his organisation did not oppose water buybacks but water efficiency projects also had to be looked at to safeguard rural communities and Australia's food security.

Efficiency measures offered the twin benefits of environmental water and maintained productivity, he said.

"Prime Minister Rudd must recognise that irrigators are not only a part of their surrounding community, but are the driving economic force in the community," he said.

"Social and economic impact studies must be completed before any town and community is effectively shut down."

Mr Rudd said the problem was a culmination of drought, climate change and a river system that had been "over-allocated to hell over the last 100 years" as he warned the latest measures may not work.

Controversially, cabinet also agreed to flood the lower lakes with seawater if experts deemed it "absolutely necessary".

with Daniel Lewis