The smelly, brown liquid began flowing from kitchen taps in the block of flats, in Kerala, on Monday morning.
Bemused residents then contacted the authorities for help, and discovered their water well had been contaminated by officials - albeit accidentally.
It emerged 6,000 litres of confiscated alcohol had been buried nearby.
The alcohol, which officials had placed in a pit after it was seized on court orders, had seeped through the soil and into a well - the same well which supplied the residents of the 18 flats in Thrissur district with drinking water.
"We were so shocked," Joshy Malyiekkal, owner of the apartment complex, told BBC Hindi's Imran Qureshi.
Luckily, the strong smell put people off consuming the water. However, the discovery meant there was not only no drinking water for the families, but they were also unable to wash.
"The children couldn't go to school and even their parents couldn't go to work," Mr Malyiekkal said.
After residents complained, officials acted to rectify the mistake.
But the process of pumping the well clean is likely to take a month, according to residents, leaving them reliant on deliveries from authorities.
"They've been supplying about 5,000 litres of water daily but it is not enough to cover all the families in our building," Mr Malyiekkal said, pointing out the well was their main source of water.
Officials from the department did not respond to questions from the BBC.
The state of Kerala has the highest consumption of alcohol in the country.