A local governor said a deal had been reached for the army to take control of the area northwest of the capital and work was underway to restore the water supply as soon as possible.
Mains water from the Ain al-Fijeh spring in the Wadi Barada region has been cut since December 22, after fighting damaged key pumping infrastructure, leaving 5.5 million people facing shortages.
"We have halted military operations in Ain al-Fijeh and started reconciliation with the militas there," said provincial governor Alaa Ibrahim, speaking to reporters from an area near the spring.
Ibrahim said that any rebel fighter in Wadi Barada willing to give up his weapon would do so, adding that those who refuse or belonging to former Al-Qaeda affiliate Fateh al-Sham would be offered passage to opposition-held Idlib province on buses arriving later today.
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"All of Wadi Barada will be secured within hours," he added.
"Water will not be cut off to the city of Damascus again."
The Syrian Observatory for Human Rights, a Britain-based monitor, confirmed that repair crews had reached the Ain al-Fijeh spring and that the Syrian flag had been raised in the area.
The opposition criticises this as a "starve or surrender" tactic, saying they are forced into deals by government sieges and heavy bombardment.
Earlier today, the army had advanced in Wadi Barada, taking the village of Baseema under heavy fire, the Observatory said.
Government forces have battled rebels in Wadi Barada for weeks, and President Bashar al-Assad personally pledged that the area would be recaptured.
The government accuses rebels, including Fateh al-Sham, of deliberating cutting water to the capital.
The fighting has threatened a fragile nationwide truce brokered by regime ally Russia and rebel backer Turkey in place since December 30.