A bench of Justices S A Bobde and L Nageswara Rao asked the Centre to constitute the tribunal and said that all pending issues can be raised before it.
The apex court, however, refused to grant any stay as sought by Odisha government on the seven pick up weirs (small dams) across the Mahanadi river, which flows through Chhattisgarh, Jharkhand and Odisha before pouring into the Bay of Bengal.
He said the court should stay the dams being built by Chhattisgarh government to extract more water from the river.
Advocate Atul Jha, appearing for Chhattisgarh government, said the Chief Ministers of the two neighbhouring states can sit together and negotiate on the issue to resolve their long standing disputes.
The apex court had on December 11 last year told the Centre that there was "no valid purpose" in resisting the setting up of a tribunal to deal with the dispute.
Odisha has been opposing Chhattisgarh's plans to build 13 barrages and seven pick up weirs (small dams) across Mahanadi river, in a plan to extract more water. Odisha has said this would adversely affect the interests of its farmers.
Centre had earlier referred to a 1983 agreement between Madhya Pradesh and Odisha and said there was a mechanism to deal with the issue.
Odisha had told the apex court that no negotiation could be done in the matter and a tribunal should be constituted at the earliest.
Chhattisgarh had on other hand countered the submissions of Odisha and said they do not want a tribunal in the matter and, as per the 1983 agreement, a mechanism was already there which should be exercised.
The Centre has also said they were in the process of finalising a bill to constitute a composite tribunal which would deal with all the inter-state river water disputes in the country.
The Inter-State River Water Disputes (Amendment) Bill 2017 was introduced in Lok Sabha by the Minister of Water Resources, River Development and Ganga Rejuvenation Uma Bharti on March 14 last year.
The Bill proposes to set up an Inter-State River Water Disputes Tribunal, for adjudication of water disputes, if a dispute is not resolved through the Disputes Resolution Committee.
Disclaimer: No Business Standard Journalist was involved in creation of this content
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