DEBT-ridden irrigators have been denied the right to sell their water as the state's largest water corporation imposes trading halts across northern Victoria.

Goulburn-Murray Water has halted trading in the Murray and Torrumbarry irrigation districts in the face of a massive surge in irrigators wanting to sell their water rights.

GMW staff have only processed half the 1010 applications lodged by irrigators to sell 191,000 megalitres, prompting the corporation to warn halts may soon be imposed in other districts as they reach the 4 per cent seasonal cap on out-of-district trade.

The record number of applications compares to just 400 last season.

Irrigators say they are desperate to sell some or all of their water in the face of drought and a massive slump in milk prices.

"Every second place has water for sale 'cause it's the only thing that's saleable," Murray irrigator Jim McKeown said.

"I don't know what they're going to do (if they can't sell their water). It's their last resort.

"What happens next is they won't be able to meet their financial commitments, especially when so many are mortgaged up to the hilt."

GMW has used a random ballot to select which irrigators' trades it approves ahead of others, meaning those who miss out may have to wait until next season to trade or separate their water from their land.

The Victorian Government has struck a deal to allow up to 60,000 megalitres a season to by-pass each district's 4 per cent cap on seasonal trade if it is sold to the Federal Government and meets certain criteria defined under the Northern Victoria Irrigation Renewal Project.

GMW operations manager Ian Moorhouse said GMW was working with NVIRP on criteria for irrigators to sell water to the Federal Government in line with NVIRP's modernisation objectives.

He said there were opportunities for exemptions given the Commonwealth was the biggest buyer in the marketplace.

But Mr McKeown said irrigators still faced enormous uncertainty as to whether their application would be exempt.

GMW analysis of ballot applications processed so far shows 19 per cent of irrigators were selling all their water shares, 36 per cent part of their shares and 45 per cent simply wanted to separate their shares from their land.

Once water shares have been separated from land they can be freely traded outside the 4 per cent seasonal cap.

Mr McKeown said the 45 per cent separating or floating their shares, were ensuring they had the flexibility to sell water at any time outside the cap.

But a 10 per cent cap has been imposed on the total volume of water that can be separated or floated off irrigators' land since July 2007. The cap has already been reached in the Goulburn and Campaspe systems as a result of this season's trade.

However, legislation removing the cap was introduced to Parliament last week and is likely to be enacted by October.

GMW has confirmed it will retain all ballot applications for systems where the 10 per cent limit is reached and process them once the limit is removed in October.

GMW has processed just half the applications, but has already halted trading in the Murray and Torrumbarry irrigation districts as the volume sold hit the state's 4 per cent cap.

In meantime, GMW and Lower Murray Water irrigators are still waiting for an allocation of water this season.

In contrast, the South Australian Government raised its irrigator allocations from 2 to 5 per cent yesterday using a 25,000 megalitre advance, which has also been made available to NSW and Victoria.

However, Victorian Murray irrigators must wait until they are granted another 195,000 megalitres of Murray system inflows before they have enough water to cover delivery system losses and gain an allocation.