The foundation was told last month that the Water Smart Water Supply - Demand Strategy for Melbourne (Water Substitution) report was "an internal working document", which could confuse the public.

However, the environmental lobby group says the report contains details of how much cheaper and efficient it is to treat sewage at the Eastern Treatment Plant near Carrum rather than build a desalination plant at Wonthaggi. Statistics produced by Clean Ocean show treating seawater is 10 times more costly than sewage and that the state could save $1.24 billion in building costs.

Melbourne Water has been asked to review its decision not to release the 2006 report.

Clean Ocean spokesman Carlo Iacovino said: "If they refuse, the next step is Victorian Civil and Administrative Tribunal and if that fails, an appeal to the Supreme Court."

He said consultants GHD had prepared the report, which compared costs between treating sewage and desalination.

"It was done in the lead-up to the 2006 state election and showed it is cheaper to pipe treated water from the South Eastern plant to Cardinia Reservoir, where it would be treated with river sediments and at another treatment plant before being sent to homes."

A similar project is scheduled to start supplying water to consumers in Brisbane by 2009.

Mr Iacovino said treated water was already being discharged into a creek from the Lilydale treatment plant, which in turn fed into the Sugarloaf Reservoir near Yarra Glen.

"Under the plan outlined in the unreleased report, everything from the South Eastern plant would go to Cardinia and the Gunnamatta outfall would be closed."

In a letter dated July 16, Melbourne Water's freedom of information officer told Clean Ocean that the report would not be released because it contained opinions, advice and recommendations that were part of a "deliberative process".

"In addition, it would be contrary to the public interest to disclose the document on the basis that the deliberations were made in the course of the promulgation of policy, and/or, disclosure could lead to confusion or unnecessary debate because possibilities considered are disclosed."