The suburbs of Botany, Pagewood and Eastlakes are affected.
Residents in those areas complained on Friday night that water began to smell like antiseptic and even petrol.
Pagewood resident Chantal Snell told Fairfax Media that Sydney Water had sent a safety officer to her home and she had been warned not to drink the water.
Ms Snell said the explanation she was given was that part of the concrete lining of the mains pipe in Gardeners Road had dislodged and contaminated the water supply with bitumen.
The incident happened after routine maintenance when the mains supply was reconnected in the area on Friday.
A Sydney Water spokeswoman confirmed an issue with the concrete lining but would not comment on whether bitumen had made it into the water.
On its website, Sydney Water apologised to customers in the area.
"The issue has now been resolved. If you are impacted we recommend running taps for around 15-20 minutes to flush internal pipes. NSW Health advises that the water is safe to drink," it said.
