The Australian Services Union - which is responsible for Sydney Water workers - said negotiations with their management have broken down, leading to the union lodging a dispute with the Fair Work Commission.
Workers are looking for improved pay and conditions after claims management slashed current salaries and imposed "secretive" contracts.
"The relationship between the people who work at Sydney Water and senior management has never been worse," deputy secretary Jan Primrose said.
Primrose claimed long-term skilled workers are quitting the organisation as a result of the deteriorating pay and working conditions.
"Sydney Water is a great public asset, but it is being dragged backwards," she said.
"These workers are essential to keeping our water clean, and our beaches pristine."
"The people of NSW who are the owners of Sydney Water deserve better and so do the workers who have been delivering Australia's safest water."
A Sydney Water spokesperson told 9news.com.au it has proposed an 11 per cent increase over three years and "has agreed to a number of proposals put forth by the joint unions".
"Sydney Water states that they have been bargaining with their employees in good faith, and with an additional meeting scheduled for next week, we're hopeful that an agreement may have been reached," the spokesperson said.
Primrose called on the government to step in and rectify the dispute between workers and management by formalising an enterprise agreement.
Premier Chris Minns said he was unaware of the industrial negotiations going on at Sydney Water but wants the senior management to better liaise with the workforce.
"I urge all parties to sit down and work through the circumstances of both the union claims and the ability of this particular agency to meet them," he said.
"It's going to be a rocky road and I've said this in relation to other industrial disputes.
"We don't welcome it but unfortunately it's part of the process."
If a strike is to occur, Sydney residents could be impacted if workers don't show up.
Minns warned there could be flow-on disruptions for residents if the strike goes ahead.
"I'm not promising that it will run smoothly but I am promising we will make progress and keep more people in the public sector to deliver better service to the people of this state," he said.
Sydney Water has more than 3000 employees and services 5.3 million customers in Greater Sydney, the Blue Mountains and Illawarra.
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