Raw sewage has overflowed on to Middlemarch streets in two separate incidents due to heavy rain.
Heavy rain and snow has been battering parts of Otago and Southland since Monday.
Tap and Dough bistro owner Norma Emerson told Newshub she was forced to close her cafe because of the wastewater spillage.
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"We can't even reach our front door to be honest, because of wastewater we believe is raw sewage," she says.
"It's quite bad, we are also sandbagging our little cafe. The water just keeps on rising because the creeks are overflowing."
The Otago Regional Council (ORC) is monitoring river levels around Otago in case they burst.
The Taieri River at Outram has reached its third flood warning due to rising water levels and the spillway is operating.
State Highway One south of Milton is closed due to the Tokomairiro River flooding and police are advising motorists to delay any travel due to the adverse weather.
The Dunedin City Council has opened an emergency operations centre to monitor flooding across the city.
Heavy rain is putting pressure on wastewater systems, increasing the water flow amounts.
Residents are being asked to cut back on showering and using washing machines to ease pressure on wastewater systems.
Mosgiel and south Dunedin residents who are concerned about flooding can collect sandbags from the Memorial Park or Hotel Taieri car park in Mosgiel.
And for south Dunedin residents, sandbags can be picked up from the Ice Stadium car park.
Niwa meteorologist Ben Noll told Newshub the worst of the rain was going to hit on Tuesday afternoon.
Interior Otago and Canterbury could see up to 75mm fall on Tuesday, and more heavy snow is expected, he says.
MetService has warnings in place for between 5 and 10 centimetres of snow to fall above 700 metres.
Mr Noll says the extreme weather is "certainly something to keep watch on".
"If you are travelling you might want to delay travels."
The New Zealand Transport Agency has area warnings in place for a number of roads due to flooding and slips. State Highway 8 between Millers Flat and Lake Roxburgh Village has also been closed due to flooding.
The bad weather is expected to ease across the South Island by Wednesday.