For Tamil Nadu, Mullaperiyar dam and the diverted Periyar waters act as a lifeline for Theni, Madurai, Sivaganga and Ramnad Districts, providing water for irrigation, drinking and also for generation of power in Lower Periyar Power Station. Tamil Nadu has insisted on exercising its unfettered rights to control the dam and its waters, based on the 1866 lease agreement. Kerala has pointed out the unfairness in the 1886 lease agreement and has challenged the validity of this agreement. However safety concerns posed by the 116 year old dam to the safety of the people of Kerala in the event of a dam collapse, have been the focus of disputes from 2009 onward. Kerala's proposal for decommissioning the dam and construction of a new dam, has been challenged by Tamil Nadu.
Tamil Nadu has insisted on raising the water level in the dam to 142 feet, pointing out crop failures. One estimate states that "the crop losses to Tamil Nadu, because of the reduction in the height of the dam, between 1980 and 2005 is a whopping 40,000 crores. In the process the farmers of the erstwhile rain shadow areas in Tamil Nadu who had started a thrice yearly cropping pattern had to go back to the bi-annual cropping.
The Kerala Government maintains that this is not true. During the year 1979–80 the gross area cultivated in Periyar command area was 171,307 acres (693.25 km2). After the lowering of the level to 136 ft (41 m), the gross irrigated area increased and in 1994–95 it reached 229,718 acres (929.64 km2). The Tamil Nadu government had increased its withdrawal from the reservoir, with additional facilities to cater to the increased demand from newly irrigated areas.
In 2006, the Supreme Court of India by its decision by a three member division bench, allowed for the storage level to be raised to 142 feet (43 m) pending completion of the proposed strengthening measures, provision of other additional vents and implementation of other suggestions.
However, the Kerala Government promulgated a new "Dam Safety Act" against increasing the storage level of the dam, which has not been objected by the Supreme Court. Tamil Nadu challenged it on various grounds. The Supreme Court issued notice to Kerala to respond, however did not stay the operation of the Act even as an interim measure. The Court then advised the States to settle the matter amicably, and adjourned hearing in order to enable them to do so. The Supreme Court of India termed the act as not unconstitutional. Meanwhile, the Supreme Court constituted a Constitution bench to hear the case considering its wide ramifications.
Kerala did not object giving water to Tamil Nadu. Their main cause of objection is the dams safety as it is as old as 116 years. Increasing the level would add more pressure to be handled by already leaking dam. Tamil Nadu wants the 2006 order of Supreme court be implemented so as to increase the water level to 142 feet (43 m).
In 2000 Frontline one author stated thus: "For every argument raised by Tamil Nadu in support of its claims, there is counter-argument in Kerala that appears equally plausible. Yet, each time the controversy gets embroiled in extraneous issues, two things stand out: One is Kerala's refusal to acknowledge the genuine need of the farmers in the otherwise drought-prone regions of Tamil Nadu for the waters of the Mullaperiyar; the other is Tamil Nadu's refusal to see that it cannot rely on or continue to expect more and more from the resources of another State to satisfy its own requirements to the detriment of the other State. A solution perhaps lies in acknowledging the two truths, but neither government can afford the political repercussions of such a confession".
