Victorian Opposition and Greens MPs have again rejected the bulk entitlement order that would have guaranteed 75 Gl of water annually for the northsouth pipeline.
The disallowance motion was passed 20 votes to 18 late last Wednesday night in State Parliament.
Debate was stifled because most of the sitting day was taken up with the vote of no confidence in Planning Minister Justin Madden.
The 36 minutes remaining for debate was split equally between the government, the Coalition and the Greens. Nationals' upper house leader Peter Hall spoke on behalf of Coalition members.
He told parliament the priority for the allocation of water savings from the foodbowl modernisation project was wrong.
"They had them in the order of Melbourne first, irrigation second and the environment third," Mr Hall said.
"We believe that was an inappropriate priority order for the distribution of those water savings. Secondly, we strongly believed the accounting for the calculations of water savings was dodgy, to say the least, and we remain firm in our view of that."
Mr Hall also cited cheaper options to supplement Melbourne's water supply, such as storm water harvesting. He said northern Victoria's need for water was a more urgent reason for opposing the entitlement.
Greens leader Greg Barber supported the disallowance but said he hoped the Brumby Government would have further discussion about the particular ways that water would be treated "through and after the completion of this project and its assessment to ensure that there is a genuine net gain for the environment".
"A significant objection I have to getting parliamentary approval for this water at this time is that the project has not yet received an environmental tickoff from the Federal Minister for Environment Protection, Heritage and the Arts, Peter Garrett," Mr Barber said.
State Member for Northern Victoria Candy Broad reiterated the concerns of Water Minister Tim Holding.
"A dangerous game is being played here in relation to this disallowance motion in terms of a vote against water savings going to the environment and to Melbourne. Rivers in northern Victoria stand to be the biggest losers in this game," she said.
"Disallowing the bulk entitlement means it will not be possible to legally set aside savings from irrigation upgrades so they can be shared as the Brumby Government has committed to sharing them - between rivers, which is the environment; irrigators; and Melbourne."
Mr Holding is expected to use a temporary qualification of rights to provide water for the pipeline.