There is an increased chance that Haldon Dam near Seddon could breach.
The Marlborough District Council decided to lower the water level in the dam as a precaution after Friday's earthquakes.
During the drainage process, the dam engineer overseeing the site has identified more issues with the stability of the dam, the District Council said in a statement.
Emergency services are on standby in Seddon and nearby residents have been warned, said District Council Assets and Services Manager Mark Wheeler.
In a worst-case scenario, eight rural properties, about a dozen houses and around 20 sections in Seddon township on the south-east side of Starborough Creek could flood if the dam breaches.