Australia's food bowl will come under commonwealth control for the first time in history after Victoria ended its resistance to a Murray-Darling Basin rescue plan.

Prime Minister Kevin Rudd brokered what he termed "an historic agreement" for the basin at a meeting with Victorian Premier John Brumby early on Wednesday in Adelaide.

The two-hour meeting, ahead of the Council of Australian Governments (COAG) conference, removed a series of sticking points which Mr Brumby said the ousted government of former prime minister John Howard had refused to budge on.

Mr Howard outlined the $10 billion plan in January last year and it won near-immediate approval from all basin states except Victoria.

"There had been a whole range of sticking points ... not being able to have a say, not having any right of review, not having any commitments in relation to real projects, in relation to infrastructure," Mr Brumby told reporters on Wednesday.

"They (the Howard government) were only ever interested in buying up water allocations. The reality is you need significant investment in water saving infrastructure as well as buy back."

Under the new deal, the Murray-Darling Basin Authority and the Murray-Darling Basin Commission will merge into a independent national body.

The commonwealth has also been given power over basin-wide plans, including a new cap on the amount of water used in the basin based on independent advice from the merged entity, to be called the Murray-Darling Basin Authority.

The deal also provides for critical human needs and arrangements to allow South Australia to store water in upstream dams to ensure there is enough water for Adelaide, which relies on the River Murray for drinking water.

Under the agreement, states will continue to have a role in setting annual water allocations and deciding natural resource management.

As part of what Mr Brumby described as a "sensible compromise", his state won an in-principle commitment from the commonwealth to invest up to $1 billion in stage two of the Food Bowl Modernisation Project in Victoria.

Mr Brumby said that commitment would help deliver about 200 billion litres of additional water to Victorian irrigators and the Murray.

"This will deliver massive water savings to irrigators, communities and the environment and guarantee water security for the region," he said.

Federal opposition environment spokesman Greg Hunt said the agreement was welcome but criticised Victoria's resistance.

"By delaying for over a year, the Victorian premier has been an environmental vandal of the worst kind," Mr Hunt said.