The report identified savings from a mutualisation

It was one of the recommendations made by an independent finance review which was submitted to the previous administration but never released.

Finance Secretary John Swinney, who has now published the report, said Scottish Water would retain its current status.

He also outlined his vision to establish a smaller, more efficient government in Scotland.

The review, led by former Western Isles Council chief executive Bill Howat, was commissioned by former finance minister Tom McCabe to look into Scottish Executive budgets.

But he later declined to publish the findings, which said there was potential to realign about �1bn.

Scottish Water will retain its current status - this is our clear policy position John Swinney MSP Finance Secretary

Mr Swinney said time was needed for the new government to consider the recommendations.

But he immediately ruled out Scottish Water mutualisation - which would eventually release more than �182m a year, according to the 181-page report.

Mr Swinney told the Scottish Parliament: "We will not be taking forward the recommendation to turn Scottish Water into a mutual company.

"I understand this proposal represents the position for the Conservatives and the Liberal Democrats, but we are not persuaded by the arguments."

He added: "Scottish Water will retain its current status - this is our clear policy position."