The project is being financed by a 2009 sale of certificates of obligation and Texas Community Development Block Grant funds.
City Manager Tom Ginter said the project will allow the city to sell treated water to the Blueberry Hills residential area west of the city.
That area has had problems meeting state regulations on water quality in recent years.
The agreement between the city and the area is expected to increase utility fund revenues.
The installation of new pumping facilities and a ground-level water storage tank also is expected to greatly improve water service to neighborhoods in the far west reaches of the city.
Council members also voted to table action on continuing a contract between the city and Beeville Water Supply District.
The district is responsible for the city’s raw water intake structure on the Nueces River, the George P. Morrill Water Treatment Plant at Swinney Switch and the 18-mile water transmission line between the water treatment plant and storage tanks in the city.
The contract allows the city to purchase wholesale water from the district.
The water is then sold at retail to customers connected to the distribution system in town.
City Attorney Frank Warner asked council members to put off approval of a contract extension until he has a chance to review the entire document.