Fairfax Media has obtained two highly confidential letters signed by Mr Walsh, the contents of which have never been published, which outline the power and autonomy he gave the Office of Living Victoria before it ran out of control.

The letters cast strong doubt over Mr Walsh's recent attempts to distance himself from the OLV's problems by declaring it was up to his departmental secretary to ensure it operated in accordance with the state's purchasing rules.

The correspondence shows the minister had weekly briefings on OLV's progress, involvement in staffing decisions and ordered that it be located apart from the rest of the bureaucracy.

An Ombudsman's inquiry last month found the OLV had awarded millions of dollars in contracts - including to former National Party advisers and consultants - with no regard for the government's procurement rules, and to be rife with undeclared perceived conflicts of interest.

In the lead up to the release of the Ombudsman's report, the OLV's top two executives - handpicked by Mr Walsh to develop the Coalition's water policy - resigned. The agency's stand-alone status has been abolished and it is now under departmental control.

A day after Ombudsman Deborah Glass released her August 5 report, Mr Walsh told ABC radio that "who they [OLV] employ and how they do it is a decision for the secretary".

However, the May 2012 letters sent by Mr Walsh to the then environment department secretary, Greg Wilson, and the inaugural OLV chief executive, Chris Chesterfield, show it would have been impossible for any departmental officials to control the agency.

That was because Mr Walsh had advised Mr Chesterfield that "your position and authority is equivalent to that of the secretary on all aspects relating to OLV and Living Victoria".

"To underline your independence, it is critical that OLV is located separately from existing agencies and authorities," the minister wrote.

Mr Walsh also informed Mr Chesterfield that he expected to "normally meet on a weekly basis to review progress and address any problems". He requested written fortnightly OLV briefings from Mr Wilson.

Although Mr Walsh wrote that decisions on work priorities, structure, staffing and location were up to Mr Chesterfield, he expected "consultation with me and my office".

The OLV awarded a two-year $1.5 million contract to scientist Peter Coombes and paid former Howard government adviser Simon Want several hundred thousand dollars. Contracts for both men, who were previously engaged by Mr Walsh to help draft the Coalition's water policy, were among those that never went to public tender.

The letters reveal Mr Walsh's mindset when establishing the OLV and his desire for a "fundamental break from the past" due to his concern that some of the state's senior water bureaucrats were resistant to change.

Both Mr Wilson and Mr Chesterfield were moved on from their jobs later in 2012 or in early 2013 amid tensions with the minister's office and the head of Mr Walsh's advisory council on the OLV, Mike Waller.

Mr Wilson is now secretary of the Justice Department and Mr Chesterfield is a director at Monash University's water co-operative research centre.

In his letter to Mr Chesterfield, Mr Walsh advised that Mr Waller would be responsible for chairing a small group of experts to oversee the direction and performance of the OLV.

"Mike has guided the policy development process since its launch in January 2011, performing his role admirably. I respect his judgement and contribution. I am sure you will do the same," Mr Walsh wrote.

Mr Waller replaced Mr Chesterfield as OLV chief executive in October 2012. Mr Waller resigned shortly before the release of last month's Ombudsman's report, with his second in command, Mr Want, following soon after.

A spokeswoman for Mr Walsh said on Wednesday that while the minister's office was consulted by the department on senior appointments, the minister did not "direct appointments". "The decision to appoint Mr Want and Mr Coombes was made by the OLV CEO and the department secretary," she said.

The spokeswoman said Mr Walsh's weekly meetings with Mr Wilson did include discussion of OLV's progress and that his office was occasionally informed of the agency's decision to engage a consultant or contractor.

Opposition water spokesman Martin Foley said the leaked documents contradicted Mr Walsh's defence that the operations of the OLV were not reported to him.

Mr Foley said the Ombudsman and the Independent Broad-based Anti-corruption Commission needed to re-examine OLV issues "in light of these matters".