Gov. Jerry Brown signed a bill Friday that will require the California State Water Resources Control Board to appoint an administrator to take control of the district.
Compton and Willowbrook residents complained of brown water and gunk coming out of their faucets.
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The district had said it was flushing out sediment from old iron pipes, and that the water was safe to drink.
State officials said in April that the discolored water posed no health risks. In May, a recall petition notice was sent to the Sativa Water District board.
As recently as a few weeks ago, some residents still had brown water.
The district serves about 1,600 customers in Compton and Willowbrook.