The new lawsuit is related to wastewater discharges into Panguipulli lake in the Los Ríos region (XIV). The municipality is seeking to have the company's environmental permit revoked.
The long-delayed Lake Titicaca basin sewerage treatment project will get underway next year, even as the government pledges billions to flooding reconstruction and other water projects around the country.
The new director of IDAAN also rejected claims that the utility could be privatized.
The water regulator is looking to set guidelines on water use grants for the dilution of domestic effluents in sewerage systems.
Nicaragua and Syria remain the only countries not to have signed the environmental accord.
Deputy governor of Paraná state, Cida Borghetti, met Hungarian ambassador Norbert Konkoly to discuss the project.
The project entails the construction of sewer and wastewater treatment systems in David, the country's third largest city and capital of Chiriquí district.
The company also plans to expand to the sewerage system in the city of Irati.