Australia will invest 1 billion Australian dollars ($678.70 million) to revamp water infrastructure in rural and regional communities in the drought-stricken New South Wales.

The federal and the New South Wales governments will spend A$650 million to upgrade the Wyangala Dam in the state's central west and A$480 million to build new Dungowan Dam near Tamworth, the government said in a statement on Sunday.

"Our response to the ongoing drought impacting rural and regional communities is comprehensive and committed," Prime Minister Scott Morrison said in the statement.