The start government said it did not need approval from the Ministry of Environment and Forests (MoEF) for implementing drinking water projects in the state.
The statement was made while addressing the Bombay high court on Tuesday.
The ministry, however, countered that the state government needed the approval of the Centre for projects on forestland meant for drinking water or otherwise.
The court had earlier sought the ministry's response to the proposal for converting forest land into non-forest land for the construction of a dam over Kalu river at Murbad, Thane.
Petitioners Shramik Mukti Sanghatna had filed a petition in June, challenging the operations started by the government in May 2010.
Petitioner's counsel Gayatri Singh told the court that the construction of the dam has affected 1,000 hectares of forest land and 42,000 trees.
The petitioners, who work for the primitive tribals in the area, said the government does not have required permissions for converting forest land into non-forest land.
A division bench of Chief Justice Mohit Shah and justice Roshan Dalvi granted the MoEF two weeks to file a reply.