An estimated 408 rural locations with a combined population of 627,736 people failed to measure up to health-based guidelines in 2018-2019, according to researchers at the Australian National University.
The Australian Drinking Water Guidelines' aesthetic determinants of good water quality across taste, colour and odour were used.
Researchers reviewed public reporting by 177 water utilities to measure potential gaps in drinking water quality in regional and remote areas.
About two million people are not included in this reporting, as national water quality statistics only include those service providers with at least 10,000 connections.
Additionally, 40 per cent of locations with reported health-based non-compliances were remote Indigenous communities.
Lead researcher Dr Paul Wyrwoll called for greater transparency in Australia's national reporting of drinking water quality.
"Our national statistics misrepresent the challenges facing households and water service providers across regional and remote Australia," he said.
The study comes amid growing concern about safe access to clean drinking water in remote Indigenous communities across the Northern Territory.
A 2020 report found water in the remote Aboriginal community Laramba was contaminated with 0.052 milligrams per litre of uranium, which is more than three times the recommended limit under national guidelines.
Dr Wyrwoll has pushed for a national drinking water database to ensure the public is better informed.
"The Australian government welcomes reviews, evaluations and additional studies that help inform policy development and further actions to improve the lives of Aboriginal and Torres Strait Islanders peoples, including meeting the targets agreed under the National Agreement on Closing the Gap," the federal government's National Indigenous Australians Agency said of the ANU's research findings.
"In the case of municipal services, which includes water quality issues, a community infrastructure target agreed by the Joint Council in December 2021 will measure progress by state, territory and local governments towards parity in infrastructure, essential services, and environmental health and conditions.
"This target includes measures that ensure essential services for remote and discrete Aboriginal and Torres Strait Islander communities will meet or exceed jurisdictional standards."
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