Environmentalists say new NSW planning laws could allow mining companies to pay to damage sensitive swamps that supply Sydney's drinking water.

The fragile swamps in Sydney’s catchment area help to maintain the city's drinking water, particularly in drought, by storing and purifying it upland.

Proposed changes to NSW planning laws include a “swamp offset” policy, which allows mining companies to contribute to a biodiversity fund.

The funds they contribute would act as a kind of insurance against subsidence, leaks or cracking, if companies could not purchase or protect a similar swamp as an offset.

Environmental scientist Ann Young, who has been working in the area, says the New South Wales Government's proposed policy does not go far enough to prevent environmental damage from occurring.

“My concern is that there's not more emphasis being placed by the Department of Planning currently on avoiding damage to the swamps as a major step,” she told the ABC.

“I certainly wouldn't like them to be just going straight to offsets and put money into a fund which may benefit some other environment but won't benefit the swamps.”

Dr Young said the threat to upland swamps could be compounded, if nearby longwall coal mines go ahead with planned expansions.

“It'll certainly impact Dendrobium when they apply for the next five longwalls in that development,” she said.

“If Wollongong Coal extends further into their Wonga West areas or goes back into their Wongawilli areas it would affect those and as Peabody moves further north in Woronora catchment, it will affect those as well.”

The Nature Conservation Council says there are two mines that have applications before planning authorities to use longwall mining techniques in Sydney's water catchment - Wollongong Coal in Russell Vale and Centennial Coal's Springvale mine near Lithgow.

“It's absolutely outrageous that the government will continue to allow the destruction of these critical areas,” Conservation Council CEO Kate Smolski told the ABC.

“It just absolutely should not be allowed.”

The NSW Department of Planning says its wider Integrated Mining Policy is designed to improve mining regulation by clarifying government policies for the community and industry.