"The proposal would see all water infrastructure in the South Island consolidated into one organisation. This means councils that have invested in pipes, wastewater and drinking water facilities would see their assets gone."
She then put up a post on her Facebook page which asked: "What is your view – should your local council have to pay iwi for drinking water? Who owns water?"
Collins also released a document that appeared to show a co-ownership model of the water entity between Ngai Tahu and councils.
But Tau said the document was an option proposed by independent consultants "which was not pursued by Ngāi Tahu".
"Ngāi Tahu wants to design the structure of the new entity with the Crown, and share governance responsibilities.
"The tribe has a huge interest in the water infrastructure in the South Island. We're like the rest of South Island communities, particularly because we're rural, and we fundamentally don't have clean drinking water."
He was backed up by Minister for Local Government Nanaia Mahuta, who has ministerial responsibility for the Three Water reforms.
"The claim by National is false , as Ngāi Tahu have also said. We have been very clear Three Waters infrastructure will remain 100 per cent in public ownership," Mahuta said.
Tau said that co-governance would provide a safeguard against any future government that wants to privatise the waters assets that are being transferred from councils.
"Labour governments in the 1980s and National governments in the 1990s and 2010s, including the one in which Judith Collins served as a senior minister, have not been able to resist the temptation of selling public infrastructure - from electricity networks to rail to offshore interests.
"The Ngāi Tahu presence provides extra protection against that."
Regional water entities are a proposal under the Government's reform programme to replace the 67 local councils that currently deliver three-waters services.
Tau said the Ngāi Tahu takiwā was a natural fit for one of the areas covered by an entity because it encompasses 24 of the 67 councils that currently deliver three-waters services.
"The iwi has strong local relationships with those councils. Our existing Treaty-based relationships would give councils another strong avenue for making sure local needs are heard and responded to."
He said the Ngāi Tahu proposal, which was currently being consulted on with all the relevant councils, "explicitly does not include a Ngāi Tahu ownership".
"The assets of the new entity would be owned by the communities who paid for them in the first place."