Thames Water escaped a fine in July but must invest �150m

But, overall, most of the 22 water firms met their targets with leaks down by around 20 million litres a day.

Total leakages in England and Wales hit almost 3,600 million litre per day, compared with 5,000 a decade earlier.

The news comes after Thames Water missed targets but escaped fines for leaks. Severn Trent is "on notice".

"We have already taken action against Thames Water for its poor leakage performance. Severn Trent is on notice and we will consider using our formal enforcement powers in the event of any further failure," said Ofwat.

Conserving water

During a drought we expect companies to give us a clear lead to consumers on the importance of conserving water Phillip Fletcher, Ofwat chairman

Earlier in July Ofwat chose not to fine Thames Water for failing to miss leakage targets, but said it had to spend an extra �150m to replace pipes.

Thames Water has been criticised for unveiling increased profits while imposing a hosepipe ban on its customers amid concerns over falling supplies.

"During a drought we expect companies to give us a clear lead to consumers on the importance of conserving water. Companies have told us informally that they have made further leakage reductions since the end of March," said Ofwat chairman Phillip Fletcher.

Severn Trent's leakages rose by 40 million litres a day. Nearly half of this was due to a new method for calculating leaks.

Two other firms that failed to meet their targets were United Utilities and Southern Water.

Five highest leakage figures: Thames - 895m litres/day Severn Trent - 540m l/day United Utilities - 475m l/day Yorkshire - 295m l/day Dwr Cymru - 225m l/day Source: Ofwat

United Utilities, which supplies the north west England, remained 7 million litres per day behind target for 2005/2006, but is in line with its recovery plan said Ofwat.

Meanwhile Southern Water missed targets by a less dramatic 0.75 million litres a day, and managed to remain within its three year rolling average target.

The top performer was Folkestone and Dover Water, which managed to beat its target of 8.4 million a day by almost 5%.

Though Thames Water recently escaped being fined for leakages, Ofwat has since said it plans to fine Thames Water for failing to meet adequate levels of customer service.

Ofwat has the power to fine Thames Water as much as �140m after the firm told the regulator that there were irregularities in the figures it used to show how it was meeting consumer standards back in January.