Thames Water is London's largest water supplier

The utility firm said it intended to either sell Thames Water or spin it off on the stock market in order to focus on its gas and electricity businesses.

RWE bought Thames Water for �4.8bn (7.1bn euros) in 2000 and analysts said it could now fetch a far higher price.

Thames Water supplies water to eight million people across London and the south of England and has 4,000 staff.

'Market leader'

It also provides sewage services to 13 million customers.

RWE said it hoped to conclude the divestment of Thames Water and two other businesses - Spanish water firm Pridesa and US business American Water - by 2007.

Any sale of Thames Water is likely to be closely scrutinised by the competition authorities.

RWE said that although Thames Water was a "market leader" in its region, there was little opportunity to exploit synergies with nPower, its other UK utility business.

"As stand-alone entities, they are well positioned to continue on their stable growth paths going forward and maintain the breadth and quality of their service," Harry Roels, chief executive of RWE, said of the three businesses set to be sold.