Not sure of any local code or legality, but if it is contained on your own land with a fair buffer zone, I cannot imagine it being a problem. From what I can see it looks like the spot would be perfect to build a new, taller, larger dam further down from the old dam, and give yourself a nicer, larger pond. While it is empty, excavate out all of the old crud in the bottom from the old pond and get a clean start.

Code here in NY is 100' from the road, 20' from the neighbor. No altering of existing wetlands.