In a surprise announcement, Water Minister Melinda Pavey said on Tuesday that current Level 2 restrictions would be wound back to Level 1 from next Monday.

"I've taken advice from Hunter Water. Grahamstown Dam is nearly at 60 per cent," she said. "We expect that when all of the inflows come in we might get around 65 per cent. There are some good weather patterns developing."

The Lower Hunter's combined water storages were sitting at 62 per cent full on Tuesday - a 9.2 per cent increase in the past fortnight.

Grahamstown Dam, the region's main water source, was 59 per cent full, Chichester Dam 100 per cent, Tomago sandbeds 65 per cent and Anna Bay sandbeds 56 per cent.

"Although this is a positive step in our drought recovery, we are not out of the woods yet, which is why it's really important that we all continue to save water where we can," Ms Pavey said.

She would not commit to further reducing restrictions if combined storage levels reached 70 per cent.

"I would have to take advice from Hunter Water and have a look at those trigger points in the Hunter water plan," Ms Pavey said.

Hunter residents and businesses have reduced their water usage by 20 per cent since restrictions were introduced for the first time in 20 years last August.

The head of the state's water sector Jim Bentley told the Hunter Business Chamber last Friday that the water savings achieved as a result of water restrictions needed to become the new normal.

While acknowledging restrictions had the potential to have adverse social and economic impacts, Dr Bentley said helping individuals and businesses improve their water efficiency was fundamental to improved long-term water security.

"We are still using 15 per cent more than Melbourne. So we have to ask ourselves are the savings we have made just wastage that we should have been dealing with some time ago or have we gone too far?," Dr Bentley, who was managing director of Hunter Water until last year, said.

"People tell me there are differences between Sydney and Melbourne and of course there are but we need to understand what the right level should be and not just accept it is what it is."

Sydney will also return to Level 1 restrictions after dam levels bounced back to 80 per cent.

Level 1 restrictions mean residents cannot use standard sprinklers and watering systems, leave hoses running unattended, wash cars or buildings without a trigger nozzle or high pressure cleaner or clean paths, driveways and other paved areas with a hose.