"In operations areas water has come through the ceiling resulting in large puddles on the floor around cabling and wiring.
"We decided to do a 'stress test' where taps and toilets were simultaneously turned on in apartments on several floors to see if the system could cope once the athletes are in-house.
"The system failed. Water came down walls, there was a strong smell of gas in some apartments and there was 'shorting' in the electrical wiring."
Carlos Nuzman, president of the organizing committee says the issues should be resolved within days, reports The New York Times.
"There are some adjustments that we are dealing with and will be resolved in a short while," he said.
"Every Olympic Village, because of their magnitude, needs some adjustments until it becomes perfect. The important thing is that everything will be resolved before the Games, without disturbing the athletes."
However Mayor of Rio de Janeiro, Eduardo Paes has laughed off the Aussies concerns.
"I almost feel like putting a kangaroo in front of their building to make them feel at home," he told reporters in Brazil according to the Sydney morning Herald.
"Adjustments that have to be made will be made, and we will have the appropriate structure."
"As hosts, what we want is for everyone to feel at home ... It is natural that you have some kind of adjustments to do, but we will make Australians feel at home here.
The Opening Ceremony of the games will be held on August 6.