Labor has joined the federal government in seeking greater environmental scrutiny for the proposed Traveston Crossing Dam in south-east Queensland.
A bipartisan Senate committee urged Environment Minister Malcolm Turnbull to consider evidence on the potential environmental impact of the controversial dam.
The committee made just two recommendations and stopped short of calling for the dam to be stopped.
The Beattie government says the dam is needed to supply water for south-east Queensland's growing population, but the plans require federal environmental approval.
The committee, chaired by Liberal senator Bill Heffernan, recommended Mr Turnbull review an audit of the Paradise Dam approval conditions to mitigate effects on species threatened by the Traveston Crossing Dam.
Senator Heffernan said the inquiry had raised serious doubts about the wisdom of building the dam.
"Strong concerns were expressed that the alluvial floor of the dam would result in high levels of seepage," he told parliament.
"Other potential problems were raised with high evaporation levels, adequacy of the catchment and the existing fault lines under the dam.
"The evidence that I've received from engineers says - in their words - this dam will leak like a sieve."
Senator Heffernan said the dam proposal had caused a great deal of angst and uncertainty among businesses and communities in the Mary Valley, who felt "stressed, anxious and frustrated" with the state government.