United Utilities has been told to continue its service improvements

St Helens Magistrates' court heard that as many as 670,000 customers in Cheshire and Merseyside could have been affected by the contaminated water.

Supplies became discoloured after a pumping station broke down in May 2004.

When water was re-routed to serve Manchester, it stirred up deposits in pipes serving Merseyside and Cheshire.

Health experts have said there was no risk to public health.

Bill Shaw, who is responsible for United Utilities water operation, said: "I apologise again to customers who were affected by this problem and would reassure them while the water they received was unacceptable, it was not unsafe.

The problem in this case was not foreseeable Bill Shaw, United Utilities

"Discolouration, as it's known, is caused by naturally occurring deposits inside a water main being disturbed by changes in the direction or speed of the water inside the pipe.

"The problem in this case was not foreseeable and the same actions which resulted in this regrettable incident had been carried out before - and since - without any impact on customers."

On Tuesday, the Warrington-based firm posted a 14% rise in profits after it increased water bills for millions of customers.

Clean-up programme

The company, which supplies water to customers across the North West, said pre-tax profits for the first half of the financial year were �282m.

However, it has been warned by watchdogs that it must now improve service and make bills more affordable.

The company was allowed to raise bills by 8.8% in exchange for investment in its water network and is now undertaking a �350 million programme to inspect, clean and repair more than 800km of water mains.