Governor Arnold Schwarzenegger declared a state of emergency on Friday because of three years of below-average rain and snowfall in California, a step that urges urban water agencies to reduce water use by 20 per cent.

Mandatory conservation is an option in the US if the declaration and other measures are insufficient.

The drought has forced farmers to fallow their fields, put thousands of agricultural workers out of work and led to conservation measures in cities throughout the state, which is the top agricultural producer in the US

Agriculture losses could reach $US2.8 billion ($A4.31 billion) this year and cost 95,000 jobs, said Lester Snow, the state water director.

"This drought is having a devastating impact on our people, our communities, our economy and our environment, making today's action absolutely necessary," Schwarzenegger said in his statement.

State agencies must now provide assistance for affected communities and businesses, and the Department of Water Resources must protect supplies, all accompanied by a statewide conservation campaign.

Three dry winters have left California's state and federally operated reservoirs at their lowest levels since 1992.

Federal water managers plan to temporarily cut off water this March to thousands of California farms.

The state has said it probably would deliver just 15 per cent of the water contractors have requested this year.

Schwarzenegger declared a statewide drought in June but stopped short of calling a state of emergency. His 2008 executive order directed the state Department of Water Resources to speed water transfers to areas with the worst shortages and help local water districts with conservation efforts.

Over the last few weeks, storms have helped bring the season's rain totals to 87 per cent of average, but the Sierra snowpack remains at 78 per cent of normal for this time of year. State hydrologists say the snowpack must reach between 120 to 130 per cent of normal to make up for the two previous dry winters and replenish California's key reservoirs.

The state delivers water to more than 25 million Californians and more than 300,000 hectares of farmland.

Schwarzenegger's order leaves the door open for more severe restrictions later.

Additional measures can include mandatory water rationing and water reductions if there is no improvement in water reserves and residents fail to conserve on their own.

Associated Press