In its draft review of market mechanisms to return environmental flows to the Murray-Darling Basin, the commission found that investing in water infrastructure is "rarely" the best way to return water to rivers.

But the Rudd Government's more controversial $3.1 billion water buyback program has been given the tick because it provides direct, and cheap, water to the thirsty river system.

"For example, the buyback has obtained high reliability entitlements in Victoria for approximately $2400 per megalitre," the report said.

"In comparison, an investment of $1 billion planned for the … Food Bowl [infrastructure] project in Victoria is expected to yield water for the environment at a cost of up to $10,000 per megalitre."

The commission recommends infrastructure projects should only be funded if savings come at a cost similar to the market price for water.

The Government commissioned the report to expand its approach to returning water to the Murray-Darling Basin - with the final version to be released next March.

A spokeswoman for Water Minister Penny Wong welcomed the "strong" support of the commission for the buyback program. The spokeswoman added the Government's $5.8 billion infrastructure program had other purposes beyond the environment, including food security.

The commission also hit out at water trading caps imposed by state governments, urging they be removed, and argued water buybacks should not be used to tackle other environmental issues, such as salinity.

Meanwhile, farmers will continue to get limited compensation for the cancellation of groundwater licences by the Federal Government after a High Court ruling yesterday.

High court judges ruled 6-1 that if a farmer's licence to drill for water is mandatorily replaced with other licences - which grant less water - additional Government compensation is not constitutionally required.

ICM Agriculture brought the case after their bore licence was replaced with an aquifer licence, reducing their water allocation by 70 per cent.