United Utilities said the sinkhole has caused damage to a sewer pipe underneath the promenade between Hoylake and Meols.
Photos seen by the Local Democracy Reporting Service show a large pipe and a large puddle of black water at the base of the promenade on the north Wirral coast.
It is understood to have happened just off Meols Parade near Firshaw Road.
A post was put out by the Environment Agency on August 31 informing the public they were currently on site at Hoylake Beach following a pollution incident. It said: "Our team is working closely with United Utilities to protect the environment and reduce impacts."
An Environment Agency spokesperson told the LDRS: "We continue to work closely with United Utilities after we received reports of a pollution incident at Hoylake Beach.
"Our officers remain on site to reduce environmental impacts and we will investigate the cause of this incident.
"We would like to thank the members of the public who reported this directly to our hotline on 0800 80 70 60."
Water company United Utilities has now confirmed the cause of the pollution. A United Utilities spokesperson, said: "A sink hole has damaged one of our sewer pipes and caused infiltration to the surface water drain.
"Our teams quickly attended and contained the issue, and no sewage has entered a water course.
"Our teams continue to be on site and will be carrying out the repairs this week."
Hoylake Beach is owned by Wirral Council and has been at the centre of a fierce debate for six years over its future following the growth of vegetation along large stretches of the north Wirral coastline.
This can now be visible from Meols to Red Rocks.
The issue has previously been described as divisive with differing opinions on how the beach should be managed. Some argue the vegetation should be cleared while others want to see it remain.
The beach is currently protected under a number of different environmental regulations. This means any activity on the beach including vegetation removal has to be approved by Natural England, a government body.