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Any reduction in water spread area at a specified elevation over a time period is indicative of sediment deposition at this level. This when integrated over a range of water stages helps in computing volume of storage lost through sedimentation. This study relates to estimation of capacity loss due to sedimentation of Hirakud reservoir, located in Orissa, India. Satellite data of 5 optimal dates corresponding to various water stages from minimum to maximum draw down levels were used in estimating the water spread areas. Simple ratiod (NIR/RED) image were generated to identify the water pixels and then verifying the standard FCC. The non-water pixels were then identified with the ratiod (GREEN/NIR) image and removed to have the total water spread. The water spread area on different satellite overpass dates and corresponding elevations were then used to find the total reservoir storage capacity with the help of Elevation area curve.