Step 1: Understand the specific nature of the dispute.
The question is not about general disputes between states, but specifically about disputes over inter-state river waters.
The Constitution provides a special mechanism for this.
Step 2: Analyze the function of the given Articles.
Article 131: Grants the Supreme Court original jurisdiction in disputes between states, or between the Centre and states.
Article 262: This article is titled "Adjudication of disputes relating to waters of inter-State rivers or river valleys.
" It empowers Parliament to make laws to provide for the adjudication of such disputes.
Crucially, it also allows Parliament to exclude the jurisdiction of the Supreme Court and other courts over these specific disputes.
Article 263: Provides for the establishment of an Inter-State Council to promote coordination between states.
Article 246: Deals with the division of legislative subjects into the three lists.
Step 3: Conclude the correct answer.
Article 262 is the specific article designed to handle inter-state water disputes.