Under the deal, the US will send less water to Mexico during a drought, while Mexico will be able to store water north of the border during wet years.

The Colorado River flows 1,450 miles (2,230km) from the Rockies into the Gulf of California.

Recent droughts and increased water usage have put pressure on the river.

"We have chosen collaboration over conflict, we have chosen co-operation and consensus over discord," said US Interior Secretary Ken Salazar.

"The Colorado River, in so many ways, makes us one people, and together we face the risk of reduced supplies in years ahead."

The US and Mexico signed a treaty in 1944 governing the allocation of resources from the Colorado River, which supplies seven US and two Mexican states.

But in the ensuing decades, population growth, increased industry and farming, as well as droughts have put pressure on the river.

The latest accord, which runs until 2017, is a major amendment of the original treaty.

This stipulated that the US must send a set amount to Mexico, enough to supply some three million homes, no matter how low the river level.

But now, Mexico will forgo some of its share during drought, a practice already followed by the states of California, Arizona and Nevada.

In return, Mexico, which has little storage capacity, is allowed to store water in times of surplus in Lake Mead, a vast reservoir by the Hoover Dam on the Arizona-Nevada border.

Mexico will also get $10m to repair irrigation channels damaged during a 2010 earthquake.

There will also be funding to restore the Colorado River delta, which has largely dried up.