The Environment Agency said it was "disappointed" with the amount of pollution caused by water companies last year, as Thames Water topped the league table of worst polluters in England and Wales.
The firm, which has been fined every year since 2000, received penalties totalling Â£128,000 for pollution incidents. Three other repeat offenders from the water sector - Southern, Severn Trent and United Utilities - also appeared in the top ten of worst polluters, helping to push up the total amount paid in fines by the sector last year to Â£353,050.
In its report, the Environment Agency said: "We expect excellent environmental performance from such an environmentally important and mature sector. But last year we were disappointed because the sector had not maintained its impressive performance of 2004."
Water and sewerage companies were the most polluting sector last year, causing 152 serious industrial pollution incidents - a quarter of the total. This represents a rise of 17% on the previous year.
Other pollution villains included waste management company Sundorne Products, fined Â£97,750, and chemical company Robinson Brothers, fined Â£63,000.
In one incident from June 2003, Thames Water was fined Â£50,000 and ordered to pay Â£8,270 in costs for polluting Swindon's River Ray with undiluted sewerage, killing 8,000 fish. The agency said that Thames Water's response had been "slow and inadequate".
Thames Water said it regretted the damage it has caused to the environment, but added that the number of pollution incidents that led to prosecution was half the figure for the previous year. It also pointed out that it has reduced by 75% the number of serious pollution incidents it has caused over the last three years.
The firm's director of wastewater operations, Tom Kelly, said: "Around two-thirds of the incidents were discharges of sewage into the Thames, which we are permitted to make. We have put forward solutions to prevent this happening, but the decision on whether to go ahead lies with the government."
Last week, a report by the water regulator Ofwat said water companies are losing 3.6bn litres of water a day through leaking pipes, with Thames Water and Severn Trent among the worst offenders.
The Liberal Democrat's environment spokesman, Chris Huhne, said it was time Ofwat looked at what could be done to make Thames Water change its behaviour.
Mr Huhne added: "Not content with gouging sky-high prices from long-suffering customers while lamentably failing to meet its leakage targets, it has now been found out as the worst polluter as well.
"Thames Water is wasting huge amounts of money on a bogus advertising campaign, whilst polluting the countryside and failing to tackle leaks."
The Environment Agency said it is particularly unhappy that Thames Water headed the leakage table because "this company supplies London - an area in which we are concerned for public water supplies and the water-related environment during this year's drought."
Thames Water, which currently has a hosepipe ban in place, has applied to the government to impose a drought order on 13m households.