UPDATED 5.57pm Hastings District Council has admitted fault in a gastro outbreak that has struck down thousands in Havelock North.

LISTEN ABOVE: Mayor Lawrence Yule discusses with Larry Williams the outbreak and potential compensation for those severely effected 

Between one thousand and two thousand people have been affected by what is believed to be campylobacter in the town's water supply.

It has emerged some had fallen ill as early as Tuesday, but the water supply was not treated until Friday.

Hastings mayor Lawrence Yule hopes the investigation will ensure this never happens again.

"We're talking to the Ministry of Health about this and it's unsure whether that will be a joint inquiry or be done separately, but it will be a major inquiry."

The mayor said the water was tested on Tuesday and found to be completely clear.

"We did a test on Thursday, which we then found on Friday morning to be suspicious. It takes 48 hours to get the final results."

"So on Friday we decided, as a precaution because people were getting sick, to chlorinate the water immediately. "

The mayor said a fund has been set up to help people who are facing hardship.

"There will possibly be requests for compensation for businesses etc and this will be something we will look into in the future. But as I've said, this is unprecedented, but we know these issues will arise and we will deal with them." 

John Key said it's not an acceptable situation, and for the size of the problem it appears a lot of contaminated material has got into the water supply.

"It's highly likely that the ministry of health will have an inquiry. What is possible is that the enquiry will be co-joined to the enquiry the council will have."

"It is not impossible that the government will have its own enquiry."

Some schools are closed and two elderly people are in a critical condition in intensive care at Hawke's Bay Hospital and the outbreak may also be linked to the death of a woman at a rest home.

Carol Winters from Age Concern said elderly people are very worried, and can't even be assured that boiling their drinking water will be enough to make it safe.

"I've been doing wellness checks and wellness calls, and at the moment about 20% have been affected, that's quite significant for our membership."

The council has today published a full-page apology in Hawke's Bay Today, signed by mayor Lawrence Yule and chief executive Ross McLeod.

The statement says the council is charged with supplying safe, reliable water and on this occasion has failed to do so.

Hawke's Bay District Health Board CEO boss Dr Kevin Snee told Mike Hosking it's a very serious problem.

"We're really, in the hospital, only seeing the tip of the iceberg because many people will present to primary career or won't be needing to see the doctor at all, so you're probably talking about several hundred people who are sick out there in the community."

Dr Snee said more than 50 people have turned up to emergency departments so far.

"Of those 18 that have been admitted to hospital, two are quite critically ill in intensive care so it's a very serious problem."

He said it's possible the peak is still to come.

Dr Snee said locals are also still being asked to boil their water.

"The bug that we've identified should be killed by the chlorination, so the boiled water is an extra precaution in case there's something else in the water that we haven't yet identified."

The Ministry of Education says a number of schools are closed today, including Te Kohanga Reo o Turi Pae Whenua which is shut until further advice.

Woodford House school is closed until Wednesday, and Iona College is closed for day pupils until the same day.

Other schools in Havelock North have been reporting as many as one in every five of their students being absent.

Catherine Wedd, whose daughter goes to Havelock North Primary, said while the school is open, there are many empty desks this morning.

"There were water trucks at the school this morning and all the water fountains at the school had big yellow tape over them saying, caution do not drink water. It's still very much a concern for parents in Havelock North at the moment."

Ms Wedd said the outbreak isn't just limited to Havelock North.

"There's someone that I knew was up on the ski field... and had to be taken to Rotorua hospital, sick with the gastro bug. It just shows how far reaching it has gone."

Principal Scientist of Water Quality at NIWA, Graham McBride said similar outbreaks have happened before.

"It's unusual. It's not unknown. For example there was an outbreak in Darfield in 2012."

Mr McBride said there is an average of 150 cases of campylobacter-related illnesses per 100,000 people yearly in New Zealand -- but it's not usually contracted through water supplies.

The Havelock North Business Association say cafes, restaurants and shops are coping extraordinarily well - given the gastro bug outbreak.

Business Association president Sam Jackman said he personally walked around every cafe, restaurant and accommodation provider on Saturday - checking how they were coping.

He said he talked to them about every action and safety measure they needed to take, including temperatures of coffee machines and what dish-washers they use.

Mr Jackman said businesses are being very responsible and most are putting up their own notices to inform the public of their safety.

The Napier City Council is reassuring its residents that their water supply is safe.

The council has posted an update this morning, saying they have tested Napier's water supply as a precautionary measure - and the city's water is safe to drink and use as normal.

It said their thoughts are with all those affected by the terrible gastro illness in Havelock North.

Those affected by the gastro outbreak are being told not to worry if their symptoms linger for a few days.

Clinical Director of Healthline, Doctor Alexandra Muthu said the help line has had over 200 calls about the outbreak - and most are concerned about ongoing symptoms.

"That's actually typical, and it doesn't surprise me because this is a bug that can hang around for a few days."

The council hopes to confirm tomorrow that the bug is campylobacter.