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The council has notified the state's environment watchdog about the spill.
Council general manager Colleen Worthy said heavy rain had caused the "stormwater-induced spill."
She has reassured the community there was no immediate health concern and said it had been reported to the Environment Protection Authority. Daily monitoring was underway and would continue until the processed water stopped flowing.
"During recent heavy rains, storm water entered the sewage system at Taralga," she said
"The volume of water entering the sewage treatment plant intake increased substantially, containing mostly storm water."
Mrs Worthy said that there was no change to the volume of water that left the plant having been processed, but that it was too much for the output buffer dam to store.
"During normal operation, when the flow rate is less, the processed recycled water is used by the Council," she said.
"Due to the very high flows during the storm, some of the processed recycled water that could not be used up by the council has overflowed from the output buffer dam and been discharged into the creek, whereas during normal operation nothing leaves the sewage treatment plant."
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