Murray Irrigation Limited will use the money to increase the capacity of its existing channel escapes, which will allow environmental water to fill up to 100 ephemeral wetlands and 373 kilometres of creeks, which otherwise would only get wet during large over bank flows

Water Minister Keith Pitt said the project was about making the available water "work harder and smarter", and would allow the government to achieve important environmental assets in the Edward Wakool river system.

"This is the sort of project that demonstrates that water recovery isn't the only way we can achieve good environmental outcomes and the Australian Government is open to innovative approaches to improve river and wetland health.

"We put an end to buybacks because of the damage they have done to regions like this - stretching beyond the individual farmgate and impacting on the efficiency or whole irrigation networks."

Environment Minister and Farrer MP Sussan Ley said regional communities - including large irrigators such as MIL - had done the hard yards through buybacks to put water in the hands of the Commonwealth Environmental Water Holder.

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"Production changes, reduced inflows and untargeted buybacks have reduced water delivery in the MIL by 40 per cent in the past 30 years, leaving valuable water infrastructure stranded - for farmers and environmental water holders," Ms Ley said.

"This project will help us make water for the environment work just as hard as farmers work their water."

Nationals Senator Perin Davey said with 98 per cent of the desired water recovered under the basin plan, it was time to focus on projects that delivered environmental outcomes.

"There's been so much emphasis on achieving water recovery targets - it's time we also focused on supporting the CEWH to use the available water to best effect," Senator Davey said.

"In this area, projects like this that enhance Basin Plan outcomes in concert with productive agriculture will see real improvements in the local environment as well as providing downstream benefits."

The project is expected to create more than 250 direct and indirect construction jobs and seven ongoing jobs.