The contract for the upgrade has been awarded to Auckland company Filtration Technology (Filtec), and will be conducted in four stages beginning with the Tapanui supply.
The Tapanui supply was contaminated over the weekend of December 5 and 6, when water levels dropped during a period of high demand.
Failures in the low-level alarm monitoring system meant the sludge at the bottom of the reservoir was sucked into the town's reticulation system.
Jules Witt, Clutha District Council manager district assets, said the Tapanui upgrade was going ahead first.
"The aim is to have the bulk of the work done by winter."
Mr Witt said the reservoir upgrade would take place over spring and summer.
Fulton Hogan had supplied a full report of the incident, Mr Witt said, and alarm monitoring procedures had been looked at.
West Otago ward councillor Peter McPherson, who brought a jar of contaminated water to the district council meeting last December and demanded action over the issue, said it was "marvellous" that the Tapanui upgrade was going ahead first.
"I'm very pleased if it's coming through as top priority, because we had this problem, and it helps to solve it," he said.
Work on the Tapanui upgrade is expected to begin in March and be completed in June.
"It's marvellous," Cr McPherson said. "It's really been a bit of a nightmare."
