The district is in an area of serious water stress and is supplied by Southern Water from its Sussex North Water Resource Zone.
Last month, Natural England issued a position statement saying it cannot conclude that the existing water abstraction is not having an impact on protected sites in the Arun Valley.
It advises that new developments within this zone must not add to this impact.
A spokesman for Horsham District Council said: “This statement sets out concerns that development in Horsham district, parts of Chichester District and Crawley Borough are increasing the demand for water, which is thought to be harming internationally protected species in the Arun Valley, with the potential threat of extinction of some species.
“The advice from Natural England is that in order for development to proceed, it be ‘water neutral’. What this means is that new development should not increase the rate of water abstraction from our water supply site in Hardham above existing levels.
“Whilst Horsham, Crawley and Chichester have already been working together with Natural England and Southern Water on longer term solutions for water neutrality within their Local Plans, this Position Statement impacts current development proposals.
“This means Horsham District Council is now unable to determine current planning applications positively unless it can be shown that they are water neutral. Whilst this is not expected to impact most smaller scale householder applications, all other proposals will need to be able to demonstrate water neutrality in order to allow the council to comply with our legal duties.
“This is a new and evolving issue for the Council and it will keep its dedicated webpages updated on this subject. The Council will allow time for water neutrality strategies to be produced and submitted by developers where schemes would otherwise be recommended for approval.
“The council is also seeking further legal advice as to what the Position Statement means for the Council’s Local Plan and Neighbourhood Plans. We will inform all parties regularly to make sure that all relevant information is shared.”
Paul Clarke, leader of the council, said: “The full implications of the Natural England communication still needs to be understood and its implications clarified for all, including householders, developers and our residents, both in the short and longer term.
“It is clear the water mitigation issue may impact our ability to deliver development in the future and we will need to consider this as part of our work on the Local Plan. We will continue to work together with our neighbouring councils, parishes and other stakeholders to better understand what we can and will do.”
Both Southern Water and Natural England have been approached for comment.