Water regulator Ofwat has been lambasted for "sitting on its hands" over Thames Water's failure to tackle leaks.

Edward Leigh MP, chairman of the Commons Public Accounts Select Committee, excoriated the regulator today after a damning report by the National Audit Office.

He said Ofwat had been "lacklustre" and "especially passive" in its regulation of the firm, which loses 894 million litres of water a day - enough to fill 344 Olympic-sized swimming pools.

"The regulator sat on its hands as Thames went on its merry way, blithely and consistently failing to hit its annual leakage targets," he said.

In a new report, the National Audit Office argues Ofwat's decision to force Thames to spend £150 million on new pipes last summer should have come far earlier given the company's "persistent failures".

Thames, now owned by Australia's Macquarie Bank, has missed leakage targets since 2000. Despite this, the group introduced its first hosepipe ban for 15 years.

The Audit Office said the decision to force Thames to spend £150 million had benefited its eight million customers, but insisted Ofwat should have "obtained such an undertaking earlier".

Sir John Bourn, the Comptroller and Auditor General of the NAO, said: "Ofwat has now taken direct action with a view to protecting the customer.

"It must ensure, in future, that its enforcement actions are timely and focused on the consumer."

An Ofwat spokeswoman denied the regulator had let Thames off the hook, explaining that targets for the company had had to be suspended in 2002 and 2003 because of the poor quality of data the water company was providing.

She told The Times: "The company last year gave us a legal undertaking to spend £150 million of shareholders' money and that is the best outcome we could have got for the consumer - and has far more impact on the company than a straightforward fine.

"It means shareholders are paying and consumers are benefiting. A fine would have gone straight to the Treasury."

Ofwat sets leakage targets for all 22 water companies across the UK. More than 3,500 million litres of water are still being lost through leaking pipes every day.

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