The council will comprise the Chief Ministers of Andhra Pradesh, Telangana and the Union Water Resources Minister.
Besides, Krishna and Godavari Water Management Boards will also be formed with each board having a Chairman, two member secretaries, one independent expert and four chief engineers.
The members would be identified before the Appointed Day for Telangana, which falls on June 2.
The Cabuinet also decided to extend the mandate of Krishna Water Dispute Tribunal, headed by Justice Brijesh Kumar. It would be extended till July 31, 2014 and additional terms of reference would be entrusted to make specific project wise allocation between Seemandhra and Telangana.