With the Interior Department poised to implement the cuts at midnight on New Year's Eve, the Imperial Irrigation District voted 3-2 to accept a modified deal -- known as the Quantitative Settlement Agreement -- that was sweetened by the state's offer of $350 million in loan guarantees and environmental protections for the Salton Sea.

"When we got movement on almost all of the points we raised after rejecting the first QSA, I believe we would have lost credibility if we didn't move forward with the transfer," said Director Bruce Kuhn.

The deal to sell Imperial Valley irrigation water to the San Diego area must also be approved by the Coachella Valley Water Authority and the huge Los Angeles-based Metropolitan Water District, which had not been accomplished by early Tuesday night.

"All four parties have to approve this before it can go forward," IID spokeswoman Susan Giller told United Press International late Tuesday.

Without an agreement, the Department of the Interior was set to reduce the amount of Colorado water flowing into the state by 15 percent with the Imperial Valley losing 7 percent of its share.

It was not clear how the MWD, which provides water to 18 million residents in 27 cities and water districts in southern California, would vote. The agency earlier in the day issued a statement indicating the IID's compromised proposal was not acceptable.

"The Imperial Irrigation District has proposed last-minute terms which deviate substantially from aspects of the October agreement and fail to meet the federal requirements for meeting the deadline sparking the elimination of surplus water to southern California," said MWD President Ronald Gastulman.

He continued: "Specifically, IID has asked the federal and state governments, as well as the other California water agencies, for a number of new concessions -- all of which would allow IID to back out of the water transfer deal with San Diego at a later time, and would impose substantially greater costs and risks on water ratepayers."

The rural Imperial Valley is home to a $1 billion agricultural industry that is vital to the sparsely populated region. The idea of giving up irrigation water raised the hackles of many residents who feared it would cause permanent economic harm by forcing farmers to fallow their fields.

California, however, has been using more than its share of the Colorado by taking rights to surplus water from other states that did not need the water at the time. But the situation changed when Arizona and Nevada in recent years began claiming the surplus water to supply their own growing populations.

Negotiations over how to divide up the Colorado surplus water took place over seven years and eventually produced a plan to transfer 200,000 acre-feet of Colorado water to the San Diego County Water Authority and lesser amounts to the Metropolitan Water District and the Coachella Valley Water District.

Environmental mitigation for the Salton Sea was earmarked for another 100,000 acre-feet annually.

The Salton Sea has been a critical sticking point since it is home to protected fish and seabirds and is also a major stopover for migrating waterfowl. The landlocked lake also depends to a large extent on water runoff from farm fields to maintain its water and salinity levels, and Imperial County officials refused to give up water rights if there was a chance they would be held liable for any degradation of the Salton Sea.

Gov. Gray Davis gave some incentive to the IID on Monday when it offered $200 million to help protect the Salton Sea and another $150 million in loan guarantees to farmers who invest in water conservation measures.

Giller said the state guarantees were a key to the new pact as was the Interior Department's agreement that replenishing the Salton Sea was an acceptable use of irrigation water.