By Matt Siegel and Colin Packham
SYDNEY, Jan 20 (Reuters) - Australia's government said on Monday it would sell back water allocations to drought-hit farmers along the Murray-Darling river system for the first time, prompting accusations that it is abandoning the vital waterway's environmental restoration.
The Murray-Darling basin is a key agricultural region as well as the largest river system in Australia and one of the biggest and most diverse on the planet.
Huge farms and ranches are spread across more than one million sq km (400,000 sq miles) in the country's southeast, sharing the environment with hundreds of unique species.
The federal government has purchased nearly 1,700 gigalitres of water in the basin under a plan to protect the system from drought and environmental degradation that was adopted in 2007.
But with dry weather returning after several years of wetter than average conditions, the Commonwealth Environmental Water Holder said on Monday it was able to offer the sale of up to 10 gigalitres of water - about 4,000 Olympic-sized swimming pools -- in the Gwydir valley in New South Wales.
Prime Minister Tony Abbott's conservative government has come under fire for its stance on the environment, including its decision last year to shut a government-funded climate change watchdog.
Years of drought and mismanagement prior to the inception of the Murray-Darling Basin Authority wreaked havoc in the delicate ecosystem and environmentalists are fiercely protective of the gains that have been made since then.
Senator Lee Rhiannon, a spokeswoman for the opposition Greens Party, accused the government of putting short-term cost cutting ahead of the environmental health of the region.
"This is a massive blow to rural Australia as a few irrigators will benefit to the detriment of river communities, the majority of farmers and the environment," she said in a statement.
Australia is in the grip of a blistering heat wave, and the move was welcomed by irrigators, who argue the water could be put to better use supporting agricultural production, already struggling from the extreme heat.
"The Murray-Darling Basin is a key agricultural producing region," said Luke Mathews, commodities strategist at the Commonwealth Bank of Australia. "It is a reflection of how very, very dry it is across most of the Basin."
Analysts said the release of water in the Gwydir valley would mainly benefit cotton growers. Australia is the world's fourth largest cotton exporter, with 75 percent of national production sold to China, the world's largest cotton buyer.
According to a 2011 Australian Bureau of Statistics report, cotton growing accounted for 40 percent of total water extracted in the Murray-Darling Basin in 2009-10.
The Australian Bureau of Agriculture and Resource Economics and Sciences in December trimmed its 2013/14 season production forecast by nearly 1.5 percent, citing lower planting areas across the country's east coast. (Editing by Lincoln Feast and Ron Popeski)