Data at Lakes Wanaka, Hawea, Dunstan and Wakatipu included lab data that was often unusable.
The worst areas were urban streams in Dunedin, intensified catchments in North Otago and some tributaries of the Pomahaka.
The Waikouaiti River was the frontrunner in terms of water quality, the report said.
Cr Andrew Noone said it was "clearly not good enough" and the council "needed to do better".
The council would spend $37 million significantly increasing water monitoring over the next 10 years.
"We can do better and we will do better."
The National Institute of Water and Atmospheric Research outlined changes the council needed to make to its environmental monitoring regime and these were "yet to flow through" the council, he said.
At a later meeting, the council would be brought more suggestions on how to improve, based on the report.
It was important to note the problems were with both urban and rural water, Cr Noone said.
"There's work to be done in both areas."
Cr Bryan Scott said at a meeting last week the council needed to "lift the bar" in the next 10 years.
"We just need to do all the things that we've been talking about, and in the first instance we need to communicate quite clearly about our success or otherwise."
New Zealand Federation of Freshwater Anglers president Graham Carter said the state of the rivers was "horrific".
"I think there's a movement among the general public to clean them up. We owe it to our kids and grandkids."
Councils and farmers needed to start "caring about the environment", he said.
jono.edwards@odt.co.nz
At a glance
The state of Otago's fresh water. —
Grade No of sites %
Excellent 19 27.5
Good 22 31.9
Fair 14 20.3
Poor 14 20.3