Farmers said the shock move could devastate the nation's wine harvest, orchards and dairy industry by further drying out a region that grows 40 percent of Australia's agricultural produce.

But Howard said scarce water supplies were needed for urban communities facing critical shortages due to a drought scientists have described as the worst in a century.

"It's a grim situation and there's no point in pretending to the Australian public otherwise," Howard told reporters.

"Based on the need to provide a critical minimum supply of water to urban communities within the basin, there is unlikely to be any water available for irrigation purposes in the upcoming water year."

The Murray-Darling basin in southeastern Australia covers more than one million square kilometres (386,000 sq miles), including most of New South Wales state and large parts of Victoria, Queensland and South Australia.

Containing 72 percent of Australia's irrigated crops and pastures and much of the nation's grape crop, it is regarded as the country's food basket.

"The impact that this is going to have on industry, on the horticultural industry and crops like grapes and stone fruits and other primary industries that rely on irrigation, including the dairy industry, is very critical indeed," Howard said.

He said the drought was impacting on the economy, which grew by a lower-than-expected 2.8 percent in 2006.

"We know already that the drought has taken up to three-quarters to one percent off our growth -- the longer it goes on the harder the impact," Howard told reporters.

The National Farmers' Federation (NFF) said the move to cut off water in the 2007-08 financial year was unprecedented and that the organisation would seek urgent talks with the government.

Laurie Arthur, the head of the NFF's water task force, said orchards and vineyards would die without irrigation and would take years to replace.

"We've never seen the like of this ever," he told Sky News. "We've been watching the run-down of dams for the past 12 months."

The Winemakers Federation of Australia said 60 percent of the grapes used in the multi-billion dollar wine industry came from the Murray-Darling basin and Howard's announcement had realised its "worst case scenario".

Federation chief executive said the drought had already reduced the current vintage by 40 percent and the impact was now likely to be even more dramatic next year.

"We've been working on the basis that 2007-08 may be another tough year for grape growers and winemakers, potentially tougher than the current vintage," he said.

Cheryl Rix, from agricultural production firm Western Murray Irrigation, said many farmers could be forced off the land.

"This is just devastating," she said. "We're going to have to turn off our taps on July 1 and the farmers will have to rely totally on what falls from the sky. There's not good forecasts for that.

"It'll certainly break the back of some of our growers here."

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