Migori residents and traders have given Governor Okoth Obado until Friday to restore water supply after three months of dry taps.
The group threatened to hold demonstrations in the county with empty jerry cans to express their displeasure.
The town has had no supplies of water following a Sh4million electricity bill.
The county gets its supplies from the Sh1.2 billion water project which was handed over to it by the African Development Bank in 2014.
It can supply 2 million litres of clean water daily to serve over 200,000 residents, who have been grappling with untreated water following the shortage.
The project draws water from river Oyani in Uriri constituency and came complete with 15 water kiosks to serve residents, most of which have since been closed.
"On Friday, we will not pay any taxes and levies to the county government. We will organise residents and traders to move with empty jerry cans for peaceful demonstration to the governor office," Kennedy Odongo, chairman of Migori Small Traders Association, said.
He was addressing the press in Migori town on Tuesday accompanied by Tobias Omino, the chairman of Migori chamber of commerce.
The two said residents cannot continue buying a 20-litre jerry can of water drawn from untreated rivers and springs in the area at Sh50.
"We are staring at a cholera outbreak in the town since hotels and food vendors have equally been affected," Odongo said.
Omino said they have already instructed traders at the bus park, Migori market and hawkers to boycott paying taxes.
"We won’t be giving Migori county millions in taxes weekly as traders including billions from the National Treasury and we are denied water in town."
Water chief officer Donald Jaleny said the shortage has been caused by delays in disbursement of money from the national government.
"We will end the crisis as soon as the money is wired to the county accounts," Jaleny said.
He called on traders to be patient as the county seeks to end the water crisis in the town.