The drilling was carried out uphill from the edge of the Oban High School all weather pitches to the car park at Shuna Terrace.
Georgina Reid, Scottish Water’s corporate affairs regional manager, said: "The team has done a brilliant job completing this phase of the project.
"They have kept customers fully informed throughout, letting them know when to expect noise from the drilling and reassuring them when necessary.
"This was an extremely challenging operation, ensuring there would be no impact on the railway line, so we are thrilled that these works went so smoothly.
"We encountered some difficult geological ground conditions which meant we had to bring in a specialised tunnelling machine from abroad.
"We have worked with this community throughout our works and recently had three classes of Oban High students on site to see the tunnelling operation in action.
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"Residents have been very supportive of our project team and we’re extremely grateful for their patience during this particularly disruptive period"
The work is being delivered on behalf of Scottish Water by Caledonia Water Alliance. CWA Communications Manager Paul Milligan said: "This important piece of work has been a long time in the planning, so we are very glad this complex operation went so well.
"We are now expecting to complete the next phase before Christmas and the whole project by the end of February next year. We would like to thank the local community for their patience and understanding throughout."
With the drilling completed, a new water main can now be installed along the footpath at the rear of Dalintart Drive heading towards Glencruitten playing fields.
The first phase of the project involved the replacement of 1.8km of pipework between Colonsay Terrace and the junction of McCaig Road with the A816 and was completed earlier this year.
The scope of the project has been significantly widened from its original £2.8 million costs after the current works highlighted further stretches of the network required attention.
An additional 500 metres of new pipes are being installed - right up to the Tullich water treatment works.
Georgina Reid added: "Scottish Water is committed to pursuing ever greater operational effectiveness and this means we must increase investment significantly to ensure we can replace ageing assets and deal with the impact of climate change.
"This increased investment will make a significant difference to customers in the area who have been affected by bursts in the past and this will ensure their supply is resilient for many years to come."
