Energy company ENGIE has been given approval to release more water from the Hazelwood Pondage into the Latrobe River.
The Environment Protection Authority Victoria granted permission to double current releases in order to lower the water levels and reduce pressure on the dam wall.
The approval will allow the discharge to be doubled from 150 megalitres a day to 300 mL a day if necessary, for up to 60 days.
An ENGIE spokeswoman said engineers would make further assessments before a decision is made to increase daily discharges.
She said pondage levels were currently being dropped by about 15 millimetres a day.
"If we retain this, we are on target to reduce levels by a metre by mid-August," she said.
"An engineering report indicated the need to get water levels down as quickly as possible to alleviate pressure on the dam wall structure."
ENGIE announced in June it would temporarily close the pondage to all water activities following the discovery of integrity problems with the ageing dam wall.
Lowering the water levels reduces the risk of an uncontrolled discharge. A study found that the walls could fail in a reasonably strong earthquake of a magnitude of six or higher.
ENGIE already had permission to release 75 mL per day as part of a licence to manage ongoing inflow and outflows.
The company sought a special EPA dispensation in June to double this amount when it discovered problems with the wall.
The EPA has stressed that 300 mL was well within the capacity of the spillway. The water will be discharged into the Latrobe River through Eel Hole Creek and Morwell River.
"The additional flow will result in an increase in salt concentration, but not to a level that will have any ecological implications," the EPA said in a statement.
It said PFAS levels in the pondage are well below the 95 per cent level of protection ecosystem standard.
"This level is not unusual in many parts of the state. Other aspects of water quality, such as turbidity and pH, will be of negligible impact on the river," the EPA said.