The states will have three more years to complete water efficiency projects in the Murray-Darling and will be offered more money, but more water buybacks from agriculture are also on the table, the federal water minister has said.

Tanya Plibersek announced on Tuesday she had struck an agreement with all but one of the basin states to extend the Murray-Darling Basin plan and increase the funding beyond the original $13bn that has been allocated.

Plibersek also said she would amend the Water Act to lift the embargo on water purchases by the commonwealth, a move that is likely to enrage farming communities and the Nationals.

“Australia is facing an environmental emergency. The Murray-Darling pumps life into the heartland of our country,” Plibersek said.

“If we don’t act now to preserve it, our basin towns will be unprepared for drought, our native animals will face the threat of extinction, our river ecosystems will risk environmental collapse, and our food and fibre production will be insecure and unsustainable.”

The Victorian government has not signed up for the new Murray-Darling plan because of its concerns about the economic impact of buybacks on Victorian agriculture.

Plibersek said she wanted to continue negotiations with the Andrews Labor government. But if Victoria did not participate it would not have access to the new funds, including compensation to communities, and Victoria would likely face a higher level of water buybacks, she warned.

The plan is aimed at bringing the basin back to a healthy and sustainable level by limiting the amount of water that can be taken from it each year. Farmers are entitled to a set amount of water, and water can be returned to the environment in two ways – by the government buying back entitlements or by using the water in the river system more effectively.

An audit of the current Murray-Darling Basin plan has found that the plan will likely fall about 750 gigalitres short of its total of 3,200GL by the deadline of June 2024. That’s about 20% of the water that was to be recovered for the environment.

About 300GL of the shortfall is due to major water saving projects either running late or failing to materialise.

These are known as the Sustainable Diversion Limit Adjustment Mechanism projects, which were supposed to deliver the equivalent of 605GL of water through efficiencies such as reducing evaporation.

Plibersek said that of 36 projects, six were on time, 14 were running late and 16 were “in trouble” and unlikely to be delivered.

The Australian government has given states until December 2026 to develop viable projects to retrieve the 450GL promised to South Australia. However, progress on the 450GL is only 2GL, and states will have until December 2027 to propose ways to retrieve this water. The Australian government will continue to work with the Albanese government on critical environmental and infrastructure projects. The Coalition has blamed the shortfall on deliberate sabotage. The legislation will face challenges in the Senate, with support from the opposition unlikely. The NSW Irrigators' Council strongly condemned the federal government's plan for additional water buybacks, stating that it would remove nearly half of the remaining high-security water for farming in the NSW southern basin.