Moorabool Shire Council is investigating a sewage leak from the new Cottonwood Springs bottling facility in Dunnstown.
Residents have complained about bad odours from the facility for some weeks, The Courier understands, and had photographed leaking fluids coming from the factory itself.
Neighbours said the smell was "unbearable" at times, and had made a report to the Environment Protection Authority.
"We were wondering what the hell's going on here," one resident told The Courier.
"It was quite a stench for the whole week, it smelt like sewerage."
The EPA confirmed it has been made aware of the situation and has begun an investigation.
Moorabool Shire Council was also informed and has begun its own investigation into the incident.
In a statement, Moorabool mayor Tom Sullivan said council is liaising with the EPA to determine the cause, with officers visiting the site recently.
"As part of its investigation, and to identify possible causes of the odour, council has inspected a septic tank at Cottonwood Springs," he said in response to questions from The Courier.
"Council has issued a direction to Cottonwood on the correct use of a septic tank and plumbers have been out to rectify issues they have with their septic (system).
"Council will go out to the Cottonwood site again later this week to ensure the tank is in working order, and will monitor the situation with the odour, and see if this eliminates the problem."
Slades Beverages, the parent company which owns Cottonwood Springs, said the issue was dealt with "over the weekend".
Managing director George Tan told The Courier the company is working with Moorabool Shire Council, and confirmed it was septic waste leaking out because of a "blocked filter in (the) septic system in the new factory".
He said the company was first made aware of the issue "last week".
"The issue has been addressed over the weekend, and as of Monday May 3, the aseptic waste issue has been rectified and there is no further off-smell that would affect neighboring properties," he said in a statement.
"Our sincere apologies on this, and thank you to Moorabool Council for providing assistance to this."
The new factory began production at the end of March, producing spring water in cardboard containers, and with plans to create non-dairy milks like oat and almond milk.
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The site draws water from a volcanic spring beneath Mount Warrenheip, and was previously the site of a brewery and gin distillery dating back to the gold rush.
The EPA website notes every business "(has) a duty to report pollution incidents".
Anyone with information on the leak, or any other suspected environmental damage, can phone the EPA on 1300 372 842.
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