Investment includes reducing odour problems at 33 waste water treatment works

The proposed increase reverses the 13% reduction in bills made in 2000.

Company Managing Director Mike Brooker said: "There is no doubt that the sharp increases in bills next year will place a significant additional burden on our customers."

Dwr Cymru Welsh Water said the rise is needed to fund investment over the next five years.

Water consumer watchdog WaterVoice Wales called the planned increase "huge and unprecedented".

Sixteen per cent is three times the increase of any rise in bills since privatisation Clive Sterl, WaterVoice Wales

There had already been warnings that water bills could to rise to an average of �350 by the end of the decade.

Now the company - which serves the majority of Welsh households - has finalised its five-year plan and said it wants most of this increase to be made next year, with further rises of one per cent in each of the following four years - all above inflation.

Dwr Cymru Welsh Water says it plans to spend �1.3 billion over the next five years, an equivalent of �1,000 for every customer.

Nearly half of this is needed to meet European environmental and drinking water targets.

Work includes renewing 2,500km of water mains and upgrading 200 treatment works.

Mike Brooker said the plans make sure there is no deterioration in drinking water standards

The average water bill is currently �286, but the company says its proposed increase of 23% over the next five years compares to an average in the industry of 30%.

The current average bill in the SevernTrent area will rise from �210 to �267 by 2010.

That is a 31% above inflation increase, although the company says it will "smooth" the first year increases of bills, with two 11% rises in 2006 and 2007.

Dwr Cymru Welsh Water admitted that its increase would particularly affect less well-off customers.

Mr Brooker said: "Before Ofwat reaches its final decision at the end of the year, we believe all parties involved should continue to work together to ensure that at the end of this process the best balance is found between the need to invest on the one hand and the need to keep bill increases affordable on the other."

WaterVoice Wales manager Clive Sterl said: "Sixteen per cent is more than three times the increase of any rise in bills since privatisation.

"Some money has to be spent on drinking water quality and improving the problem of sewage flooding people's homes but we need to take a critical look at the investment programme and ask whether some of this could be better dealt with by more regular inspection and maintenance.

"Many of these programmes haven't been checked to see if they are cost effective or properly explained to customers."