Thames Water's owner has told its bondholders it will default on £400 million of bonds.
Kemble Water had already warned it would be unable to repay a £190 million debt due at the end of the month.
A notice sent today to its bondholders said that it missed an interest payment that was due on Tuesday.
Lenders were asked to take no action to give it a "stable platform while all options are explored".
Options are expected to include a restructuring of the London water supplier.
Kemble, which is funded solely through dividends received from Thames Water, added: "The company expects that it will be in a position to provide a further update in the coming weeks."
Shareholders recently pulled plans to inject £500 million into water utility after a row with regulator Ofwat reportedly over how much the group would be allowed to hike prices and cut jobs.
Yesterday, it was revealed Kemble’s future hangs on a consortium of lenders that includes two Chinese state banks.
According to the Financial Times, the consortium owed the money is made up entirely of foreign banks including ING, Allied Irish Banks, Bank of China and the Industrial and Commercial Bank of China.