One of the UK's biggest water companies has been warned its plans to contract out services could create the kind of chaos seen in the aftermath of rail privatisation

The plan by Anglian Water represents "an adventure into uncharted territory", according to the New Policy Institute.

Anglian, which has customers in Norfolk, Suffolk, Essex, Cambridgeshire, Northamptonshire and Bedfordshire, could hand over the running of almost all its services to private companies by 2007.

Senior managers claim such a move would only take place where private firms offered a more efficient and better value for money service.

'Unprecedented' move

But Peter Kenway, the report's author, told BBC News Online that plans for "piecemeal" contracting out could lead to the same kind of problems seen in the wake of the privatisation of the rail network.

"In the water industry it is unprecedented," he said.

Mr Kenway said it was vital for the water industry regulator, Ofwat, to reassure the public that Anglian's proposal was "sensible and justified".

Roy Pointer, managing director of Anglian Water, said private companies would have to "add value" to what he claimed was Anglian's already highly efficient performance.

But a spokesman for Ofwat said each time Anglian Water wanted to contract out work it would have to gain approval from the regulator.