Pembrokeshire Council and Public Health Wales have asked Llysyfran reservoir owners, Welsh Water, to temporarily restrict activities such as swimming.
The council said the Environment Agency had carried out tests and would continue to monitor the situation.
The build up of algae is a natural occurrence during warm conditions.
The council said the blue-green algae produced toxins which could cause skin rashes, nausea, vomiting, stomach pains, fever and headaches if swallowed.
Continue reading the main story Do not swim in the waterDo not swallow the waterAvoid contact with the algaeDo not eat fish caught in the reservoirDo not allow pets or livestock to come into contact with the waterObserve and abide by notices positioned around the reservoir Occasionally it can cause more serious illness such as liver and brain damage.The council said children were at greater risk than adults of developing problems.
An outbreak of blue-green algae at Aberffraw on Anglesey was confirmed by Environment Agency Wales in July last year.
Powys council spent more than ?400,000 restoring Llandrindod Wells lake after the build up of blue-green algae killed hundreds of fish in the summer of 2006.
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