Insurer IAG has withdrawn its support for raising the height of the Warragamba Dam wall.
At the insurer's AGM on Friday, chairwoman Elizabeth Bryan said: "It has become clear that a decision to raise the height of the Warragamba Dam wall could well result in the destruction of both large areas of natural environment and also important cultural heritage sites."
"In the past we have expressed support for the raising of the wall, however we now have additional information concerning the probable loss of significant cultural heritage sites, and important natural habitats," Ms Bryan said.
She said the insurer still continued to support the need for flood risk mitigation in the Hawkesbury-Nepean Valley to reduce the risk to life and property.
Federal Member for Macquarie, Susan Templeman, welcomed the insurer's move.
"I welcome this IAG announcement as a sign that the plan is now receiving proper scrutiny by people who had previously advocated for it," Ms Templeman said.
"From the start I have questioned why the NSW government has refused to acknowledge that not only are there serious questions about whether the wall raising provides any real protections from flooding - given several other rivers have a role in the flooding the Hawkesbury region - but that it does significant damage to Indigenous and natural heritage in the Greater Blue Mountains World Heritage Area."
Gundungurra woman Kazan Brown from Warragamba, said IAG had become the latest company to understand that giving "lip service" to preserving culture and art dating back thousands of years was not enough.
"There has been a shift. I have to assume Rio Tinto has set it off," she said.
"If the sites go under, the only place our culture will exist is in history books."
Colong Foundation for Wildnerness campaign manager Harry Burkitt said the announcement represented a major shift in sentiment from the insurance industry and called on other insurers to adopt the same position.