The source has been identified by officers as a leaking heating oil tank, from a nearby premises, which leaked into the foul sewer and entered the sewage treatment works.
After discovering the pollution, Dŵr Cymru Welsh Water acted immediately to contain as much of the oil as possible within the sewage network to prevent further pollution entering the river.
The discharge has now stopped, but officers will continue to monitor the situation in the affected areas until water quality returns back to normal. People may continue to notice some discolouration of the water over the weekend.
In the mean time, Gwynedd Council has placed signs on the bank of Afon y Bala near Llyn Padarn advising people not to swim in the area.
The council advise that warning signs have not been placed on the shore of Llyn Padarn and watersports activity and swimming in Llyn Padarn is not restricted.
Once the investigation into the cause of the leak is over, Natural Resources Wales will consider if it is appropriate to take any further action against the premises where the pollution originated from.