Energy bills are set to rise by £139 a year on average after UK regulator Ofgem said the price cap on the most widely used tariffs would go up by 12%.
For eleven million households that will mean a rise to £1,277, but 4mln pre-payment meters will face an even steeper rise with their cap rising by £153 to £1,309 or a 13% increase.
Ofgem boss Jonathan Brearley blamed rising wholesale energy costs for the increase.
“The reason the price cap is going up is there has been a record increase in energy prices across the board, not just in gas and electricity but in petrol and diesel," he told the BBC.
"I appreciate this is extremely difficult news for many people,” he added in a statement.
"Higher energy bills are never welcome and the timing and size of this increase will be particularly difficult for many families still struggling with the impact of the pandemic.
"The price cap means suppliers only pass on legitimate costs of supplying energy and cannot charge more than the level of the price cap, although they can charge less.”
He urged energy users to shop around for the best deal, while those who don’t want to switch can ask their supplier for a better tariff.
The new rate will come into force from October 1 for customers on their supplier's default tariffs.
Those customers who have signed up for fixed plans with suppliers are not subject to the price cap. Customers are often able to save hundreds of pounds by choosing a fixed tariff over the default, said the regulator.
Ofgem adjusts the price cap twice a year based on estimates of the wholesale costs of gas and energy paid by suppliers, which accounts for 40% of the overall price cap level.
Gas prices have risen to a record high in Europe due to a recovery in demand following economies reopening after Covid and tight supplies.
"This is a devastating increase," said Peter Smith, director of policy and advocacy at fuel poverty charity National Energy Action.
"Millions of household budgets are already stretched to the limit and this massive increase could not be coming at a worse time."
Shares in British gas owner Centrica PLC (LSE:CNA) dropped 0.5% to 47.8p at the opening of trading in London.