ALBANY — The city’s release of muddy water from its upstate Ashokan Reservoir could soak Big Apple taxpayers with their second multimillion-dollar environmental penalty in five years, upstate officials say.

Ulster County Executive Michael Hein told The Post that the city’s Department of Environmental Protection could be liable for $4 million in penalties for dumping some 42 billion gallons of sediment-heavy water into the Lower Esopus Creek, a major drinking water source and a regional sport-fishing destination.

The releases, which have spanned three months, have given the once-clear creek the appearance of chocolate milk, jeopardizing aquatic life and farm irrigation equipment, critics say. Hein has filed papers in federal court to sue for damages under the Clean Water Act.

The DEP contends the sediment was stirred up last fall by a series of major storms and argues the releases are necessary to maintain quality drinking water for the some nine million New Yorkers it serves. The agency announced last week that it would stop all water releases by mid-February.

A federal court in 2006 ordered the DEP to pay $5.7 million in penalties for making similar releases into the Esopus without the proper permits.