Vic Water Minister Tim Holding confirmed last night that a 10 per cent limit on the amount of water that can be bought by non-landowners would be removed.

The decision came after several months' review of the limit, but did not come with a timeline for its implementation.

The trading rule was introduced to allay fears that water would be monopolised by large corporations with no interest in farming.

It effectively ensured that most of the water purchased in Victoria came with a parcel of land, increasing the probability that the water would be used for agriculture.

The Federal Government and other states had long pressured Victoria to remove the cap, and in recent weeks NSW had threatened to introduce its own equivalent if Victoria did not yield.

Mr Holding said Victoria's decision would help accelerate the Commonwealth's reform of the Murray-Darling Basin.

"This will also enable water to be purchased from willing sellers as part of the Commonwealth Government's buyback scheme to return water to the Murray River," he said.

Mr Holding's move won applause from Australian Conservation Foundation spokeswoman Arlene Buchan.

"We are delighted to see Victoria commit to removing the 10 per cent cap, which was completely at odds with the National Water Initiative," Dr Buchan said.

"We don't know what the time frame will be, but the sooner this is removed the better."

But Opposition country water spokesman Peter Walsh said removing the 10 per cent cap was a bad idea.

"Agricultural water should be tied to land because its primary use is to produce food for the nation, not to be an investment tool for a major corporate entity," he said.

Victoria continues to cling to another water trading limit that prevents more than 4 per cent of water being traded outside the irrigation districts.

The Federal Government, South Australia and environmentalists have urged Victoria to abandon that trading barrier too, but Mr Holding gave no indication that he would act.

Mr Walsh said relaxing the 10 per cent cap meant there was a good chance that the 4 per cent cap would soon fall as well.

"The risk is they will cave in again," he said.