A major Chinese state-owned coal producer has caused "drastic drops" in groundwater near one of its projects, the environmental group Greenpeace said in a report.
Lakes have shrunk, wells have dried and sand dunes are spreading near a plant in Inner Mongolia run by coal conglomerate Shenhua Group, the organisation said on Tuesday.
It called the project a "classic example of the unchecked expansion of coal-reliant industries that is in growing conflict with China's water resources".
China—the world's biggest energy consumer—relies heavily on coal to power its economy, but is facing popular pressure to balance growth with tackling pollution.
The plant in Ordos, the capital of Inner Mongolia, a major coal-producing region, uses coal to make chemicals.
To enable production it extracts water from the Haolebaoji area 100 kilometres (60 miles) away, Greenpeace said, citing 11 visits to the area over five months this year.
A lake called Subeinaoer has dropped in surface area by 62 percent from 2004 to 2011, it said, and residents must now dig wells at least 100 metres (330 feet) deep, while farmers and herders have complained of disappearing grazing.
Sand dunes have spread as land covered by vegetation has shrunk, the campaign group added.
Shenhua Group is not the same company as the firm which owns Didier Drogba's former football club Shanghai Shenhua.
China is the world's largest producer and user of coal, accounting for for nearly half of worldwide consumption.
Beijing has set a target of raising non-fossil energy use to 15 percent of its total consumption by 2020, up from 10 percent in 2010.
Pollution has become a popular grievance, with communities around China protesting industrial plants that they fear could harm the environment or their health.
A study released earlier this month in US scientific journal the Proceedings of the National Academy of Sciences found that a decades-old Chinese policy of giving free coal for winter heating to residents in the north of the country has shaved more than five years off life expectancy there.
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