"Customers are paying the higher prices that Thames Water has been allowed to charge -- an average increase of 24 percent over 2005-10, excluding inflation -- without getting the benefits the company has promised to deliver," the regulator said in a statement on Wednesday.

Thames Water, which wants to limit the use of water in London amid the most severe drought in the past 100 years, said it would accelerate its replacement of the capital's Victorian water mains in areas where leakage was highest.

"It is immensely frustrating that despite our strenuous efforts to reduce leakage we have missed our target," said Chief Executive Jeremy Pelczer in a statement.

Thames Water, a unit of German utility RWE, said pretax profit was 346.5 million pounds in the year to the end of March, on turnover up 18 percent to 1.39 billion.

On June 9, Thames Water said it would seek special powers to limit the use of water by 5 million customers in London to cope with the drought by restricting a range of water usage from washing cars to watering public parks.

It said that between November 2004 and March this year there had been below-average rainfall in every month except two, and that 2005 was the third-driest year on record.

As a result, according to the Environment Agency, southeast England has less water available per person than parts of Sudan and the southern Mediterranean and there is a "real risk" of people being forced to queue for water at temporary standpipes in the streets this year.

Thames Water, which provides water for 8 million people and sewerage services for 13 million, has a ban on using hosepipes that was introduced on April 3.