Concern for the future of the Collie River and other water beds surrounding the regional town has been sparked after July rainfalls fell short.
Distressed locals have called for the State Government to rethink Lake Kepwari plans amid concerns the river beds will dry up come summer.
Collie River researcher and activist Ed Riley said the diversion of water into the lake was starving the south branch of the river of vital water, causing the riverbed to dry up - similar to what was seen in 2015.
"We have had a very dry winter and are well behind in rainfall. This has caused the rivers, which are normally flowing strongly this time of year, to be a shadow of what they used to be," he said.
"Creek systems that are normally flowing strong this time of year are trickling and there are some creek systems that haven't even been able to flow, which is disturbing."
Mr Riley pointed the finger at Lake Kepwari, saying the rivers were being robbed of water by the controversial lake.
"Where the river used to bypass the lake and fill up all the natural pools surrounding Collie, they are now being diverted into the lake to fill it," he said. "The river system downstream from the lake is subject to collapse if action isn't taken soon."
Collie-Preston MLA Mick Murray said he had met with a number of residents and was committed to the health of the river system.
"We are certainly not prioritising Lake Kepwari over the health of the river and we are making every effort to ensure both the river and lake thrive," he said.
"Turning Lake Kepwari into a watersport destination has long been a key project and we're doing everything we can to get it done right, while monitoring the health of the river.
"Premier Coal and the State Government are working together to ensure everything is done in the best possible manner within a sensitive system."
Water Corporation South-West regional manager John Janssen said the dry winter had affected the river systems and local dams.
"We simply do not receive the same amount of rain that we used to and this has had an impact on dam levels across the south west of Western Australia, including dams used for non-drinking water purposes," he said.