Tests have confirmed the presence of the bacterium in the water supplied by Cluny Estate - and at one address it was 20 times higher than the acceptable level. Coliforms - another bug - was also found to be more than 50 times above the maximum permitted level under the Private Water Supplies (Scotland) Regulations 2006.
Letters have now gone out to around 30 households, mainly in the Millbank area, advising them to boil their water as it is unsuitable for human consumption.
Many families are also buying in bottled water following complaints of stomach upsets, one of the symptoms which can be caused by drinking contaminated water.
Millbank resident Jacqueline Ross, 43, who received a letter from estate factor Jonathan Dymock, two weeks ago, said the level of e-coli was "frightening".
She said: "The water comes out the tap brown when we've had a lot of rain. But to be told there was e-coli in it was a bit of a shock.
"The kids drink a lot of juice so we have had to go out and buy bottled water."
Ms Ross and her youngest daughter, Katie Ogg, 12, have both suffered stomach upsets in recent weeks. But the relief lunch-time auxiliary worker, who also has a 19-year-old daughter, Leanne Reid, admitted it was impossible to "pinpoint it on one thing."
Robin Jackson, 50, a self-employed computer specialist, whose home is served by the same supply, said his youngest daughter also came down with a tummy bug recently.
But he said: "We don't know if that's just school stuff. It would be difficult to say what caused it."
Mr Jackson has a filter system installed at his home to kill any bacteria in the water, but as a precaution is also buying in bottled water to ensure the health of his family, including daughters, Olivia, 13 and Emma, 10.
While e-coli is not always dangerous to humans, in some cases it can cause sickness and diarrhoea and is potentially more harmful if consumed by young children and the elderly. Experts have made it clear the bug is not the potentially deadly e-coli 01571 strain.
Mr Dymock, who confirmed in his letter that it was the Quinach Private Water Supply which had failed a random water quality test, said it was the advice of both the University of Aberdeen, which carried out the tests, and Aberdeenshire Council's Environmental Health Department, to boil the water to sterilise it before use.
He is now expected to meet with a council environmental health officer this month to carry out a risk assessment on the supply.
His letter added: "I have visited the site and have not been able to establish the source of the contamination. The new springs and tank have not been damaged by land management activities and it seems unlikely that pipe joints are the source."
Iain Ogden, of the university's applied food and environmental group, suspected that the contamination could be connected to grazing livestock near the well head.
He said: "The presence of e-coli means there is faecal contamination in the water supply and if faeces is getting in, other bugs can get in too."
He said the estate factor has been advised that the water should be treated and the well head fenced off from any nearby livestock. If it proves difficult to cure the problem, he added that residents should have treatment systems independently installed.
A spokeswoman for Cluny Estate said yesterday (Wednesday): "The matter is being dealt with in conjunction with environmental health and we hope to have it resolved as soon as possible."
One woman, who asked not to be named, however, said she switched to mains water five years ago because the Cluny supply had "always been a bit iffy".
She said several years ago she thought her daughter, who was at primary school, was allergic to orange squash but later discovered it was the tap water she was using to dilute the juice that was the problem.
"We just use it (the Cluny supply] in the garden now. We had an outside tap and didn't disconnect that," she added.
A sample taken from that address on February 13 showed the level of e-coli was 21 per 100ml of water and coliforms was 53 per 100ml of water when the maximum permitted level is zero.
An Aberdeenshire Council spokesman said: "A meeting is due to be held this month with the estate owners to discuss the next step in the process, which will involve undertaking a risk assessment of the supply. This process is part of the new private water supply regulations that came into force in July 2006."