Testing on Wednesday morning eliminated the Tokomaru River as the source of lead contamination detected in the small Horowhenua town's water supply.
Residents were told not to drink tap water on Tuesday as a precaution while further testing was carried out to isolate the source.
The council said on Wednesday afternoon its reticulation network - the source of the original concerns - had come back clear and within compliant levels.
A tap at the water treatment plant was still showing non-compliant levels of lead, but the tap was used only for testing and was not part of the wider water network.
"This tap is used solely for testing the water," Horowhenua District Council chief executive Monique Davidson said in a live broadcast on the council's Facebook page. "It is not part of the network that supplies the Tokomaru settlement."
The "positive news" was reassurance the town's water supply was not contaminated, but the do-not-drink notice remained in place out of caution.
"To be clear, the tests today have confirmed the water supplies to the network are within compliant levels of lead."
"Enhanced" testing will be carried out as soon as possible to confirm Wednesday's findings, she said.
"I want to give you absolute assurance that we are worrying hard not only to isolate the issue…that all parts of our testing regime show compliance."
She reiterated that water from the reticulated supply should not be used for drinking, making baby formula, making ice, washing vegetables and fruit, feeding pets or brushing teeth.
Instead, residents should use water from a tanker parked by the town's swimming pool, or bottled water. Some of the latter was being supplied directly by the council, including to the town's early childhood centre and the school.
It was suspected erosion of a piece of plumbing could be to blame.
Flushing of the entire network began at 1.30pm on Wednesday "to remove any contaminants in the water".
About 160 houses are serviced by the Tokomaru water supply.
The Ministry of Health said the water was fine to use for bathing, though caution should also be taken when bathing children that they did not accidentally swallow any of the water.
Mayor Bernie Wanden said a drop-in centre would be open at the town's community hall between 10am and 12pm on Thursday for any locals who had concerns or questions.
The do-not-drink notice will stay in place until the council "can with 100 percent confidence say that the source of the contamination has been eliminated and the water is again safe for consumption".