He said the algae looked as though they were "festering and rotting" and couldn't have come at a worse time, with 17,000 tourists expected in the city for the Rugby World Cup.
Hamilton City Council research and planning manager Kemble Pudney said the new bloom started to develop last November and was proving hard to move. He said the strong smell was from the blue-green algae decaying.
Mr Pudney estimated the cost of fixing the problem was likely to be "six figures".
The council, in conjunction with scientists and academics, were looking at two options to move the toxic scum - capping sediment which tends to feed that type of algae in the lake or ultrasound treatment to destroy the algae.
Councillors will receive one report next month and the next in December.
Waikato District Health Board medical officer of health Dr Dell Hood said lakes with blooms should not be used for any activity which involved skin contact with the water.
"If people still choose to do this when warnings are in place, they should shower and change their clothing as soon as possible afterwards, even if no symptoms are noticeable."
Symptoms from the bloom include rash, skin and eye irritation, allergy symptoms such as hayfever and asthma, and possibly stomach upsets such as diarrhoea and vomiting.
People are advised to wash their skin if they come in contact with it.
The bloom poses a higher health risk for young children.
Willem de Lange, race secretary of the Hamilton Yacht Club, which uses the lake for racing on Wednesdays and Saturdays during summer, said his group had been told the bloom was dying off, so planned to resume its summer sailing next month.
Meanwhile, blooms at Hakanoa and Waikare lakes are diminishing but health warnings remain in place.
Bad smell
* Hamilton lake invaded by pungent-smelling algae.
* Council and scientists trying to find ways to move it.
* Health authorities warn people not to go in the water.
* It's feared problem may not be solved by summer.
