Council will meet on Tuesday with the house's future on the agenda.

A staff report has recommended "necessary action be taken to require the removal of the unauthorised cottage and ancillary structures from the foreshore of the dam."

It said a request from Orange consultant planner Peter Basha on behalf of the unnamed owner of the building to change ownership of the land could not be agreed to.

"Recently council has received correspondence 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," it said.

"While such action would transfer the cottage and surrounding land into private ownership, the action would not satisfactorily address the original issue raised by NSW Water, being the construction of a dwelling on the foreshore of a water supply dam."

It said it appeared the house, built in the late 1800s, was placed on the site between April and July 2017 based on Google Earth images.

"The dwelling and a caravan appeared to be used as short-term accommodation," it said.

The report said it did not have planning approval on the site.

It was brought to council's attention by NSW Water officials inspecting the dam last year.

The council is also set to approve its 2021-22 budget at Tuesday's meeting.

It includes a 10 per cent increase in water charges and a two per cent increase in rates, levies and water management charges.

Council will spend $24 million on capital works and major projects.

That includes $6.9 million on local road construction and $5 million on a community centre development in Molong.

Council has also identified projects it will apply to be funded under round four of the state government's Stronger Country Communities Fund.

It is recommended to apply for $300,000 for each of two projects, female changerooms at the Jack Huxley Oval in Manildra and the Eugowra Sports Ground.

"Both projects are considered eligible and meet the objectives of this round of funding," a report to the council meeting said.

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