The Greens, a politically peripheral but influential pro-environment group, is calling on the New South Wales government to stop the expansion of longwall coal by Gujarat NRE.
Plans presented to the Australian Securities Exchange earlier this month show that Gujarat NRE wants to mine within 500 metres of the Cataract Dam near Wollongong.
Greens MP Lee Rhiannon said mining so close to the dam could cause the wall to crack and could lead to gas leak.
She says similar operations have seen river beds dry up and led to surface gas leaks. "Experience in the southern coal fields has shown many dramatic cases where river beds have cracked," Rhiannon was quoted as saing by ABC.
"In 1994, the Cataract River actually ran dry, the Georges, the Bargo and the Cataract rivers have all been undermined, had their riverbeds cracked."
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Gujarat NRE acquired Elouera Colliery from BHP in December and merged it with neighbouring Avondale Colliery to create a single giant mine.
The company's documents say it intends to extract 350,000 tonne of coking coal this year, rising to 1.3 million tonne in 2010, with longer-term targets of 2.5 to 3 million tonne a year, by mining areas close to the dam.
The NSW government is yet to approve the mine extension plans, though approval has been granted for access tunnels. Environment groups, including the National Parks Association of NSW, Rivers SOS, the Colong Foundation, the Nature Conservation Council and the Wilderness Society, have also opposed longwall expansion saying it will continue to damage rivers and drain upland swamps, the Sydney Morning Herald reported.