Fish were killed and about 25 swans, geese and ducks were found covered in a dark substance after a spillage.
A clean-up operation at Bumble Hole in Netherton had cost over £25,000 and it looked like the spillage "may have been a deliberate act", Dudley council said.
A number of small fish were found dead on the surface.
Many birds were "collapsed and hypothermic" and a rescue operation was ongoing, the RSPCA said adding it was the worst spill one worker had seen.
The substance, believed to be mainly red diesel with traces of cooking oil, left a red substance on the surface when it came through the surface water drainage system and a culvert on 29 December, the council said.
RSPCA inspector Boris Lasserre said it was "the worst oil spill" he had "ever seen", but with volunteers' help, birds had been sent to Stapeley Grange wildlife centre.
Mr Lasserre said: "It is a very difficult rescue operation as many of the birds are almost impossible to reach, not just in the water but stuck in wooded undergrowth around the lake."
Last week, 12 geese, nine ducks, three coots and one swan were taken to the Nantwich centre where "the team washed the smelly, toxic oil off them", the charity said.
Five of the ducks and one goose did not make it, but the remaining birds were now in "reasonable condition".
The council is working with Severn Trent Water to try to locate the source.
The maximum penalty for a water discharge activity offence was up to five years in prison and/or an unlimited fine, stated the authority.
Cabinet member for public realm Karen Shakespeare said: "Without the quick actions of volunteers at the nature reserve who reported it, we could have seen an even more serious impact on the nature reserve and our wonderful local wildlife who suffered greatly as a result of this despicable act."