The fuel contamination was discovered on Sunday after Duri residents reported a fuel smell in their water in Railway Avenue - right in the middle of the village which is just south of Tamworth.

Hazmat, the Environmental Protection Authority and Tamworth council have been investigating the leak and have issued an urgent warning for Duri locals, and surrounding properties not to use groundwater or bores.

Tamworth council's manager of compliance Ross Briggs said two properties have found traces of fuel in their groundwater.

A survey was launched and testing was carried out on Thursday to determine how far the contamination might have spread.

"We're unsure of the type of fuel, or the levels of fuel there, so we will get that back when we get our results back from the laboratory, probably next week," Mr Briggs said.

"At this stage, it's looking like a some kind of underground fuel tank has leaked and that has contaminated the aquifer that these properties use."

The council admitted the festive period shutdown had contributed to the delay in the health warning, but action had been taken on New Year's Eve and testing was well under way.

Mr Briggs said the level of contamination that had been detected made it unsafe to drink.

"Don't drink the groundwater would be our advice from a health perspective, anyway, to minimise the use of bore water in the Duri village just for the fact that it can draw contamination towards those bores if they're heavily used and we're trying to limit the spread of that contamination," he said.

Mr Briggs said more testing would nail down the source of the contamination and the council would work quickly to shut it down, and start the clean up.

"If it's an underground tank, it's possibly an old underground tank that's ruptured or leaked or had a pinhole leak that's been affected by [movement] by the drought," he said.

Council said the two homes impacted were using alternate water like rain tanks, and other properties are urged to do the same. Anyone who notices a fuel load or believes they have been contaminated is urged to contact council immediately for testing to be carried out.

According to NSW Health, fuel and other petroleum products contain a mixture of many different chemicals including benzene, toluene, ethylbenzene, xylenes, and other petrol hydrocarbons which are referred to collectively as Volatile Organic Compounds (VOC).

Everyone is exposed to petrol hydrocarbons from many sources, such as petrol pumps and chemicals used at home or work. Common ways that people may be exposed are through breathing fumes while re-fueling a vehicle, working with petroleum products or touching soil contaminated with petrol hydrocarbons.

Some petrol hydrocarbons can have health effects. Fortunately, people are likely to notice an unusual taste, odour or appearance of water contaminated with petrol at levels far lower than those associated with any health risk. Due to this, the chance of people consuming water that contains harmful levels of petrol hydrocarbons is also low.

The short-term (acute) effects of consuming petrol hydrocarbons include nausea, vomiting or diarrhea. Often no symptoms occur following ingestion. Headache, dizziness or drowsiness, or irritation of the eyes, lungs and skin may occur following direct contact with high concentrations of petrol hydrocarbons.

If there is ongoing exposure there may be effects on the immune system, blood cells, lungs, skin and eyes. The International Agency for Research on Cancer has determined that one compound in petrol (benzene) is linked with an increased risk of cancer in humans. However long-term risks are unlikely in this situation due to the short-term nature of the event.

NSW Health reinforces its standard advice that groundwater in urban and village settings should never be used for drinking due to its potential for microbial and chemical contamination.

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