Thought by council staff to have been constructed in the late-1800s, the cottage is believed to have been relocated from parts unknown to a prime spot on the edge of Borenore Dam about four years ago.

The problem is that the property is on council-owned land.

And even if it had been on private land, the state government doesn't allow people to live that close to a public water supply.

Cabonne Shire mayor Kevin Beatty, who declined to name the owner, said there was no record of any development application.

A staff report to councillors recommended that ''necessary actions'' be taken 'to require the relocation of an unauthorised building from the foreshore of the Borenore Dam Water Supply Facility'.

Officers from NSW Water were inspecting Borenore Dam last year when they ''noted a dwelling that had been constructed on the foreshore of the dam'', the report said.

"The proximity of the building to the water supply dam was raised as an issue compromising the licensing of the dam as a water supply facility," the report said.

Council staff investigated the site and concluded that the well-established grounds and cottage were situated upon council-owned land.

They said that, according to Google Earth images, the dwelling appeared on the property some time between April and July 2017.

It also appeared, they said, that the dwelling and a caravan were being used as short-term accommodation.

"Further investigation identified the person responsible for the construction of the cottage," said the report.

The matter was to have been discussed at Tuesday's Cabonne Council meeting, but Cr Beatty deferred the item until the May meeting.

He said the house owner had requested to speak to councillors ahead of that meeting.

The staff report said council recently "received correspondence from consultant planner Peter Basha, on behalf of the owner of the building seeking council's comment to a proposal to effect a subdivision or boundary adjustment/land swap (at the proponent's cost) to excise the land containing the unauthorised cottage from council ownership and transfer it to private ownership".

Staff said this would not satisfactorily address the original issue - the construction of a dwelling on the foreshore of a water supply dam.

"It is suggested that ... action be taken to require the removal of the unauthorised cottage and ancillary structures."

Mr Basha said he was not authorised by his client to comment.

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