* Australian town unites to ban bottled water

* NSW Government follows by stopping bottled water purchases

* Bottled water industry says ban restricts consumer choice

By Belinda Goldsmith

CANBERRA, July 9 (Reuters) - An Australian town has banned bottled water, claiming to be the first in the country to revert to the tap for the sake of the environment and prompting the nation's largest state government to stop buying bottled water.

Residents of rural Bundanoon, a picturesque, tourist destination 150 kms (93 miles) southwest of Sydney, voted overwhelmingly on Wednesday to rid the town of bottled water to combat the carbon footprint from bottling and transporting it.

Local businesses in the town of 2,500 people have agreed to replace all single-use bottles with reuseable bottles that can be filled from water fountains and to bear the loss of sales.

"Bottled water has a role to play in various parts of Australia and many parts of the world but we don't really need it as we have a wonderful municipal water supply," local businessman Huw Kingston, who led the campaign, told Reuters.

"We're not a bunch of raving greenies but this is us showing we can work together as a community for sustainability."

Kingston, who runs a combined cafe and bike shop, said the ban was voluntary, with "no water police in Bundanoon", so it was up to the town's 50 to 60 businesses to implement the change.

He said a catalyst for the campaign was an application by Sydney company Norlex Holdings Pty Ltd to build a local water extraction plant, raising people's awareness of the issue. The application was rejected but an appeal is before the courts.

The campaign has spread beyond Bundanoon, prompting the government of New South Wales (NSW), Australia's most populous state, to also look at ways to cut down on bottled water.

Organisations like conservation group WWF have campaigned against bottled water, saying resources are wasted in bottling and transporting water which may be no safer or healthier than tap water while selling for up to a thousand times the price.

INDUSTRY SAYS TAKES AWAY CONSUMER CHOICE

NSW Premier Nathan Rees this week announced an immediate ban on state departments and agencies buying bottled water.

"Tap water isn't just better for the environment, it's better for your wallet - you can refill your drink bottle 1,350 times for the average cost of a bottle of spring water," Rees said.

Australians spent about $500 million (US$395 million) on bottled water in 2008, a 10 percent increase on 2007.

Environmental group Do Something!, which helped drive a ban on plastic bags in Coles Bay in the state of Tasmania, welcomed the NSW government and Bundanoon bans.

"We are very much hoping that this move will get Australians to rethink the half billion dollars a year that they spend on bottled water," said Do Something! chairman Jon Dee.

But Geoff Parker, director of the Australasian Bottled Water Institute Inc, set up 10 years ago to represent the industry, said the bans were disappointing as they stopped consumer choice and were detrimental to local bottlers and distributors.

"Bottled water does not replace tap water but it does compete with other beverages in the shop fridge or vending machine and the decision to remove quite possibly the healthiest option in this selection does not embrace common sense," he told Reuters.

"The environmental footprint of one bottle of water of locally produced water would be much smaller than a tin of canned tomatoes imported from overseas, some imported cheese, or French champagne. We need to keep it in perspective."

(Editing by Miral Fahmy)

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