Walkers have expressed their horror at seeing a river turn black, grey and blue with dead fish floating on the surface.
The river Tillingham near Rye had a foul smell yesterday, walkers said.
Southern Water addressed reports of black water and said it had also heard that a dead sheep was spotted in the river.
A spokeswoman for the compamy said: "We have received numerous reports today of discoloured water along with dead fish and sheep at Rye Harbour and the River Tillingham in East Sussex.
"We take pollution concerns like this very seriously and have taken numerous samples at various locations. Our samples have indicated that ammonia levels are not at levels that would cause concerns. We have also investigated all our assets and can confirm this is not related to any of our operations.
"This has no relation to any of the issues relating to water supply in the area either. We will continue to support the Environment Agency in their investigation."
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The Environment Agency confirmed it was investigating the reports.
It said its initial work points to a "natural event" which has caused the discolouration and dead fish.
A spokesman for the national government body said: “We were made aware of an incident at Rye on the River Tillingham on Thursday. Our officers attended site to investigate and reported a small amount of dead fish, but no fish in distress.
“The river has a bluish tint, and initial investigations point to a natural event, which has caused low dissolved oxygen levels resulting in some fish deaths.
“Our investigations continue. It is possible that more dead fish may appear on the surface as they wash further downstream.
“We thank the members of the public who reported this incident to us via our free 24-hour incident hotline on 0800 807060.”
Residents have raised their concerns that it could be sewage.
Mandy Bheir, from Rye, said it is a "disgrace".
"All is not well in the Tillingham," said James Arter, from Rye. "Dead fish everywhere," he added.