Inspections of the Yabulu nickel refinery have revealed significant tailings seepage and elevated levels of ammonia in nearby waterways.
The ABC reported that ammonia levels in the Alick and Blind creeks near the refinery have exceeded the environmental authority, as reported to the Department of Environment by managing company Queensland Nickel Sales last week.
An inspection by the Department of Environment also revealed that millions of litres of contaminated water seepage from the unlined tailings dam were being pumped back into the dam from a series of trenches and dams.
At least one pump in the tailings system was found to be non-functional.
Queensland Environment minister Steven Miles said the department would investigate the water quality reports, with new samples already taken last week.
"We're not yet in a position to confirm the extent of any contamination or, if it did occur, where from the refinery the contamination may have come," he said.
"When EHP has the sampling results and the Queensland Nickel Sales investigation report has been submitted, the department can determine if any compliance and enforcement responses are required."
In December last year, immediately prior to the management changeover, Queensland Nickel was charged with two counts of contravening its environmental authority as a result of overflowing tailings dams in 2014.
The Department of Environment accused Queensland Nickel of poor management and reckless conduct.
It is understood the cost of remediation for the Yabulu Refinery site could be somewhere between $25 million and $40 million, however the former owner BHP has indicated the clean-up cost could be more than $100 million.