BEIJING, June 3 (Reuters) - Tap water in the eastern Chinese city of Wuxi is back to normal after green algae, sparked by industrial and agricultural waste, caused a drinking water crisis, Xinhua news agency said on Sunday.

Taihu Lake, China's third largest lake, in the southern province of Jiangsu, was struck by a foul-smelling canopy of algae that left tap water undrinkable for more than 2.3 million residents of Wuxi and prompted a run on bottled water.

"The quality of water from all tap water companies in Wuxi is stable and has met the standards for drinking water," Xinhua quoted the local health authority as saying.

"But urban residents in Wuxi ... still depend on bottled water for cooking and drinking as certain polluted water still remains in transmission pipes."

Algae blooms can develop in water that is rich in nutrients, often because of run-off from heavy fertiliser use, industrial waste and untreated sewage.

Officials had invoked emergency measures, diverting the Yangtze river and seeding clouds to provoke rainfall to try to flush out the algae. Heavy rainfall is also expected in the area in the next few days.

But the China Daily warned in an editorial that the government needed to deal with environmental problems before they turned into disasters.

"As a country of 1.3 billion, the central and local governments must have a long-term view for sustainable development and foresee potential dangers or crises that could have a serious impact on residents," the editorial said.

Residents of Wuxi said the algae was driving a roaring trade at fast-food outlets in the city.

"Here they fry food," said a company manager named Zhao as he queued at one outlet. "I can't eat dumplings or noodles because they would be cooked in water and it's too expensive to use bottled water."

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