The project - the largest ever undertaken by Wannon Water - has been held up by a number of appeals by environmental groups who wanted more done to treat the water to a higher quality.

A Victorian Civil Administrative Tribunal hearing was settled in November, paving the way for work to begin mid-year but the project has now got a lot bigger.

Wannon Water project manager Chris Mahony said the Environment Protection Authority had issued a revised development licence which called for the installation of a disinfection system at the plant by 2025.

"The original cost estimate of $40 million will need to increase to accommodate the additional works, but this will be better understood once the works are tendered," Mr Mahony said.

With soaring price of supplies and extra infrastructure to build, the cost of the project could be millions more than first planned.

But that doesn't mean bills will go up, with the Essential Services Commission controlling pricing, but it could push back work on other planned projects.

Wannon Water will also set up a project working group to focus on future upgrades at the site.

Contaminated land near the old rifle range will be cleaned up as part of the first stage of the works which will begin within months with parts of the project soon to go out to tender.

Mr Mahony said the design and approval process for the upgrade was nearing completion.

"The geotechnical review has been finalised and our consultants are now completing the final stages of the design package," he said.

"Tendering for some of the early works package is on track to occur in the next few months.

"Site clearing and remediation work to a contaminated section of land previously occupied by the rifle range will be the first stage of the project.

"Contractors are expected to begin on-site works in mid-2022."

The Warrnambool Sewage Treatment Plant services Warrnambool, Allansford and Koroit and is currently operating at the limit of its treatment capacity.

The upgrade is needed to cater for the region's economic growth and burgeoning housing estates.

When it was first announced, the project involved construction of two new treatment tanks to increase capacity by 50 per cent.

The upgraded plant was touted as helping to create over 1500 new jobs and boost the regional economy by $200 million a year by 2040.