EXCLUSIVE: NSW Premier Nathan Rees has lifted an embargo on the Federal Government buying NSW irrigators' water to boost the Murray Darling Basin's environmental flows.

Acting Prime Minister Julia Gillard and NSW Premier Nathan Rees struck a deal this week, which allows the Commonwealth to buy 890 billion litres of NSW irrigators' entitlement during the next five years.

In May NSW Water Minister Phil Costa slapped an embargo on federal water purchases, in response to the Federal Government's announcement of a $303 million purchase of 240 billion litres in water entitlements from six Twynam Agricultural Group properties in NSW.

At the time Mr Costa argued NSW was doing are doing "all the heavy lifting'' in delivering water to the Commonwealth to boost the Murray Darling Basin's environmental flows.

The Commonwealth was in the midst of finalising deals on its second-round tender of NSW water purchases in May when the NSW Government locked it out of the market.

This week's decision is set to clear the way for a number of deals to be finalised between NSW irrigators and the Federal Government, including a $50 million trade by Murray Irrigation Limited of 43 billion litres of general security entitlement.

The Federal Government aims to spend $3.1 billion during the next five years buying environmental water  to boost the Basin's flows.