Residents in the small town of Forsayth, south of Georgetown, say their water supply is so bad it is making people sick.

Locals says the water has always been undrinkable but a $500,000 treatment plant installed last year was supposed to fix the problem.

The New South Wales Health Department has issued a warning to residents in Braidwood east of Canberra to boil their water.

High levels of E coli bacteria were found in the water supply today after a fault in the council's water treatment process.

The department is urging residents to boil any water for at least three minutes before consumption.

Palerang Mayor Jim MacLachlan says the council is currently carrying out maintenance on the chlorination plant.

"We had a problem with the chlorination of the water supply in Braidwood," he said.

"For some reason the pH is very high and therefore the dosing of chlorine is more difficult but there has been a minor malfunction within in the chlorination plant and that's being worked on by staff."

A FIVE-year-old boy has been hospitalised for cryptosporidiosis after claims the water he drank from a garden tap was contaminated.