The stay was granted by a bench headed by Chief Justice Mohit Shah who heard arguments submitted by both sides.
The petition filed by Gram Panchayat of Ashti village alleged that the authorities were biased and had allowed the construction of the sugar factory by flouting all norms and in violation of rules.
The petition alleged that the factory was owned by relatives of Maharashtra Minister for Cooperation and Textiles Harshvardhan Patil.
The location of the factory was on a piece of land which was in close vicinity of the reservoir. The land was chosen here so that one-third water of the reservoir could be used for the factory, it alleged.
The petition contended that Ashti Talao, built during the British era, is the only source of drinking water to the local population as well as 25 villages within a 50 km radius. It is an ecologically sensitive area. Some 200 species of birds come here during different periods of time, the Grampanchayat's advocate Shrinivas Patwardhan said.