Premier Dominic Perrottet announced the decision to pursue the project on Wednesday as NSW again faced widespread flooding, with a month's worth of rain predicted to fall on saturated catchments in the coming days.
"Today is a landmark day ... for a project that has been talked about for decades," he told reporters.
He stressed he didn't want the vital infrastructure bogged down in red tape and government bureaucracy, saying "we need to prepare, we need to invest".
"It is all about saving lives and protecting property," he said.
It was necessary to help future-proof western Sydney from floods.
The independent flood inquiry report by Professor Mary O'Kane and Mick Fuller had determined the best way to protect western Sydney communities downstream was to raise the wall, he said.
It was the most effective long-term flood mitigation strategy to help protect residents in the Hawkesbury-Nepean, which had been repeatedly hit by floods, he said.
"We are committed to progressing this important project to make sure residents have genuine flood protection into the future."
In the case of another major flooding event in the Hawkesbury-Nepean area, raising the dam wall would reduce those properties affected from 15,000 to 5000.
The number of people needing to be evacuated would be reduced from around 90,000 to 14,000, he said.
Water Minister Kevin Anderson said the cost of damages would also be reduced by up to $8 billion.
Labor's plan to lower Warragamba's water supply level by 12 metres would lead to severe water restrictions for Sydney residents and increase water bills, he said.
Planning Minister Anthony Roberts said the CSSI declaration would not affect the rigorous assessment and stakeholder scrutiny the proposal would need to go through.
"The proposal has already been subject to an 82-day public exhibition, which gave stakeholders a chance to provide their feedback," he said.
The recent flood inquiry confirmed that raising the wall was the most effective flood mitigation option available.
"This proposal doesn't hurt us during drought, but will protect us during floods, balancing the natural extremes that are becoming more frequent," he said.
WaterNSW would respond to the feedback and issues raised in submissions and its Preferred Infrastructure Report before a comprehensive assessment was undertaken in accordance with the Environmental Planning and Assessment Act.
