Thames Water has "significant issues to address," according to water industry regulator, Ofwat, although liquidity "remains strong."
In a statement, Ofwat said: "We have been clear that Thames Water has significant issues to address - their environmental record and leakage performance, for example, are poor.
"Alongside the turnaround of their operational performance, they need to improve their financial resilience too."
But it sought to reassure over the financial health of Thames and the sector.
The regulator said Thames "has strong liquidity - it recently received an additional £500mln from shareholders and has £4.4bn of cash and committed funding."
“Overall, the sector is continuing to attract international capital and is especially attractive to long term investors such as pension funds," it added, noting "there has been an additional equity injection of around £2bn since 2020, with companies acting to strengthen their financial position."
Shares in listed utilities were weaker on Thursday with United Utilities down 1.2% and Severn Trent down 1.6%.
Environmental campaigner Feargal Sharkey said Thames Water’s financial woes have exposed that the industry is “very financially fragile”.
Sharkey told Radio 4’s Today Programme that failures in the regulatory system and political oversight had led to the current crisis.
He said: "We’ve seen the symptoms of it, in terms of the sewage crisis, in terms of London’s water supply running out, in terms of leaking pipes not being repaired.
"And it’s now exposed this deeper underlying structural issue that the industry is clearly very financially fragile, if not teetering on the brink of insolvency."
The press is awash with reports that the government is considering bringing Thames Water back into public ownership as it battles a £14bn debt mountain.