The merged companies supply more than two million customers

The commission said it had decided not to block the merger between South East Water and Mid Kent Water but cost savings must be passed to customers.

"We are very pleased," said Richard Sturt, chairman of the Consumer Council for Water Southern (CCWater).

The two companies supply more than two million people across the region.

Mid Kent has 600,000 customers in Ashford, Canterbury and Maidstone, while South East has 1.5 million in Kent, Sussex, Surrey, Hampshire and Berkshire.

Cost savings

The CC held an inquiry into the merger, which published its final report on Tuesday.

It said the merger would make it more difficult to make comparisons between water companies but that would be offset by cost savings.

"A price cut... allows customers to benefit from the cost savings and the improved water resource management we think are likely to result from the merger," it said.

The CCWater, which gave evidence to the inquiry, said customers' bills should be reduced by �4m in 2008-09.

A further �3.1m a year of efficiency savings should be reflected in prices from 2010 until 2015.

"The new company should make significant savings and it is only right that consumers should see the benefits as well as shareholders," said Mr Sturt.

"We hope that consumers can also expect a more integrated approach to resource development in the South East, as well as improvements in customer service."