In conjunction with any project which it has established, and subject to pertinent provisions of law governing the supply, the board of land and natural resources may establish a system for and supply water for domestic purposes to residents within and in close proximity to the project. The system shall be established only if (1) the board determines that it would be advisable and in the public interest to provide the domestic supply; (2) its construction and operation by the board has been consented to by the board of water supply of the county in which the project is situated, and by a majority of the land occupiers within the project; and (3) if under normal conditions of water availability, the operation of the system will not prejudice or interfere with the supply of water to the land occupiers within the project. The board may also subject to the limitations previously set forth in this section, take over, improve, and operate any existing system for the supply of domestic water if requested so to do by the owners and operators of the system.