Water Resources Minister Harish Rawat, after the meeting, said the new policy had been approved.
"We have improved on the 2002 policy to meet the challenges of the future," he said.
The policy seeks to focus on the looming crisis in the water sector and lay a roadmap on principles of equity, sustainability and good governance.
Rawat said states had been assured that the proposed national water framework law and the law on river basin management would be drafted only after extensive consultations.
Sources said states such as Kerala, Bihar, Punjab and Madhya Pradesh have expressed reservations on some aspects of the policy.
They said apart from concerns on the national water framework law encroaching on their powers, some states had reservations on inter-basin transfer of water. There were also demands for speedy resolution of inter-state disputes.
Earlier, in his opening statement, the prime minister said the country faced water scarcity and legal structures dealing with water were inadequate.
He said planning for water use and distribution had to be done on the foundation of national vision.
He called for a national legal framework on general principles of water and said the country was approaching a critical juncture for the future of water management.
He said there was a need to treat water as a common property resource in a way that protected basic needs of drinking water along with livelihood of poor farmers.
Manmohan Singh said water or the lack of it could become the limiting factor to social and economic growth.
"India already faces a scarcity of water, which is a vital and stressed natural resource," he said.
He said one of the problems in achieving better water management was that the current institutional and legal structures were "inadequate, fragmented and need active reform".
The prime minister said suggestions had been made for a national legal framework of general principles on water, which, in turn, would pave way for essential legislation on water governance in every state.
"The framework would be an umbrella statement of general principles governing the exercise of legislative, executive or devolved powers by the centre, states and local governing bodies," he said.
The prime minister called for a paradigm shift in approach to water issues.
"We need to rise above political, ideological and regional differences and also move away from a narrow project-centric approach to a broader holistic approach to issues of water management."
He said groundwater levels were falling in many parts due to excessive withdrawals, leading to contamination with fluoride, arsenic and other chemicals.
The prime minister said there was no regulation for extraction of groundwater and its coordination among competing uses.
He said rapid economic growth and urbanisation were widening demand supply gap, water bodies were getting polluted by industrial waste, groundwater levels were falling due to excessive withdrawals and there was contamination with fluoride, arsenic and other chemicals.
The prime minister said water security was an issue on which the country would swim or sink together.
The new water policy calls for integrated water resource planning at the basin level, preservation of river corridors, mapping of acquifers, water use efficiency, setting up of water regulatory authority by states, removal of urban and rural disparities in distribution of water and differential pricing.
It also calls for involvement of local communities in the management of water.
New Delhi: The National Water Resources Council Friday approved the new National Water Policy with Prime Minister Manmohan Singh saying legal structures on water were inadequate and calling for judicious use of the resource.
First Published: Friday, December 28, 2012, 21:14