"This is a far-sighted and timely allocation of funds to benefit all Queenslanders who use water," QGC managing director Richard Cottee said Friday.

Premier Anna Bligh set aside the funds as part of Queensland's $510 million share of federal funding. The funds would go towards the purchase of water entitlements and improving water efficiency in the Queensland section of the Murray-Darling Basin.

QGC said large quantities of water are produced daily from its Surat Basin coal seams as part of the CSM production process.

This water is currently considered a waste by-product and pumped into purpose-built evaporation ponds.

QGC has the capacity to produce about 17 megalitres of water a day and is negotiating an agreement with the Dalby Regional Council to supply half a billion litres a year to the town of Miles.

This supply of water is expected to rise with the step up of gas exploration and production to supply the Queensland Curtis LNG Project.

"Water extracted as a by-product of CSG (coal seam gas) production comes from the coal seams themselves, not underground aquifers," Cottee said.

"We have already produced potable water in our own reverse osmosis trials. Let's use this plentiful resource - not let it slip through our fingers."