Level 2 restrictions will begin on Monday as water storage levels edge closer to 50 per cent capacity.

Under the new restrictions outdoor watering is limited to 15 minutes every second day. Vehicles and buildings can only be washed with a bucket and showers are limited to four minutes.

Houses with even street numbers are allowed to water outdoors on even days of the month. Those with odd street numbers can water on the odd days of the month.

All outdoor watering must happen before 10am or after 4pm.

Fines can be issued for any person or business that does not comply with the rules. Individuals can be fined $220 and sole traders and businesses $550.

"We encourage everyone to continue loving water by following the water restrictions and making simple changes at home such as reducing showers to 4 minutes and fixing leaks. It's the small things we can all do that together will help conserve our precious resource," a Hunter Water spokeswoman said.

Level 2 restrictions will be in place until the combined water storage reaches 60 per cent. It is currently sitting at 53.2 per cent.

Read more: The Big Dry

Grahamstown Dam is just over half full at 53.8 per cent, Tomago is sitting at 55.8 per cent, Anna Bay at 54.6 per cent and Chichester Dam has 37.1 per cent capacity.

If dry conditions continue Level 3 restrictions will be enforced around June. If that happens all outdoor water use will be banned.

Water usage across the Hunter has dropped significantly since Level 1 restrictions were enforced in September.

Residential use dropped by 18 per cent between September and December which is equivalent to the average water use of 66,000 households.

Businesses have saved more than 420 million litres of water, which is equivalent to 168 Olympic swimming pools. Finding and fixing leaks has been a major part of the saving.

"Like most of NSW, the severe drought continues to be felt across the Lower Hunter. Water restrictions will be tightened to Level 2 from next week, to help conserve the region's drinking water supplies, with our dams now at their lowest levels in almost 40 years," the spokeswoman said.

Small businesses that use less than 10 million litres of water each year will have to develop a Water Efficiency Management Plan to identify savings that can be made.

This will include schools and a wide range of businesses from cafes and restaurants to hairdressers, offices, landscapers and nurseries.

The plans will be put into action if the region reaches Level 3 restrictions.

"The plans help identify specific actions a business can take to reduce its water use and be as efficient as possible, while maintaining continuity of their operations," the spokeswoman said.

"To help small businesses develop these plans, we've made a range of resources and information available on our website including water saving fact sheets for different industries and a template Water Efficiency Management Plan."