After a complaint from a member of the public on Tuesday, the council believes it has tracked the leaks to two small dams on the eastern side of the lake.
The council's general manager of parks and community facilities, Taryn Crewe, told Morning Report crews were out accessing the problem and attempting to fix it.
"Our teams have been on the ground yesterday and the day before and at this stage we do believe that it's been caused by the two weirs on the southern eastern and northeastern side of the lake that are leaking," she said.
Locals have reported stinking mud as well as dead fish around the foreshore. She confirmed the lake levels had dropped by 30cm compared to normal levels and that contractors were out today looking for solutions.
She expected the problem to be resolved next week. Animal welfare in the meantime was a focus for staff.
"We have got people out there daily now just assessing the situation and looking after any distressed birds and any of the fish in the lake," she said.
"At this stage, just judging by yesterday, we know that the eastern side of the lake has caused some issues because of the increased heights between the rock wall and the lake level.
"But the western side there isn't as much of an issue, which is near where the main springs are.
"So obviously we are concerned and therefore treating it as a priority, but we are also going out there daily to make sure we can address any of the animal welfare concerns.
She said an issue like this had not happened for some time, and that council usually inspected the lake every week, more so during the warmer months, because of botulism with birds.
She assured the public that the situation was being dealt with but in the meantime advised people not to enter the lake, but continue to raise any concerns if they saw anything.
"Hopefully today we'll be able to confirm exactly what that issue is and and be able to fix it as quickly as possible," she said.
"Our main focus is to get it completed so that within the next week, we can see the lake levels start to rise again."