Customers will see their water bills cut by £50 and firms must invest an extra £6m every day over the next five years under plans unveiled by the water watchdog.
Ofwat said its latest five-year price review is the "most far-reaching" ever undertaken and will see £12bn invested over and above the usual costs and business spend.
It said firms must provide better services and increased investment at the same time as cutting water bills by an average of £50 before inflation.
Other new targets set under the review include cutting pollution incidents by more than a third, reducing supply interruptions by almost two-thirds, helping 1.5m customers who are struggling to pay, and reducing leaks.
Ofwat said the review has been laid out for 14 of the 17 water firms across England and Wales, with three firms - Severn Trent, South West Water and United Utilities - having already seen their price plans for the next five years given the initial green light.
Ofwat chief executive Rachel Fletcher said: "The package we are unveiling today signals a brighter future for customers, with better services, a healthier natural environment and lower bills."
She added: "These are seriously stretching goals for the sector, but we know they can be achieved.
"We have seen three water companies leading the way and we now want the rest to show the ambition and drive to deliver this new era for customers and the environment."
