Ofwat, the water industry regulator for England and Wales, will be abolished under recommendations from a Government review led by former Bank of England deputy governor Sir Jon Cunliff.
It is understood that Labour ministers will announce a consultation on Monday into creating a new regulator, coinciding with the release of Cunliffe's review findings.
The watchdog, which polices water company charges in England and Wales, has faced intense criticism over its failure to prevent sewage spills, hefty dividend payments and ballooning debts across the water sector.
As such, reports indicate the review will recommend creating a new regulatory system. The Government commissioned the review amid growing public anger about record sewage spills and rising bills, as well as the deteriorating finances of major water companies.
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|Ofwat is reportedly set to be abolished
Critics say Ofwat has presided over a culture of underinvestment in water infrastructure and financial mismanagement since its creation in 1989.
One of the most pressing concern is Thames Water, the UK's largest water company, which carries £20billion in debt and is struggling to avoid financial collapse.
The company is currently negotiating with Ofwat over a potential takeover by its creditors whilst seeking leniency on fines and penalties.
If these talks fail, Thames Water is likely to fall into temporary state ownership through the special administration regime.
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Cunliffe warned in his interim review that the current regulatory system, including Ofwat, had "largely lost public trust", The Guardian reports.
Industry leaders have long complained about a lack of coherence in water regulation, with different regulators and agencies duplicating investigatory work.
Stakeholders have said this has made timely decisions difficult, allowing probes to drag on rather than prevent or address environmental harm and pollution.
Cunliffe suggested "fundamental, structural options for integrating regulatory remits and functions".
Currently, three separate bodies regulate water - Ofwat, the Environment Agency and the Drinking Water Inspectorate.
Environment secretary Steve Reed said last year the review would "shape new legislation to reform the water sector so it properly serves the interests of customers and the environment."
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Water campaigner and former Undertones frontman Feargal Sharkey said: "The bonfire of the quangos in the industry needs to go further, we need remedial and radical action and we demand it now."
He added: "A regulator that has never been prepared to acknowledge its role at the epicentre of greed, corruption and incompetence is just as guilty as any water company of polluting rivers and exploiting customers."
Ofwat insiders expressed concern that scrapping the regulator without a clear plan could add uncertainty at a sensitive time for investment. One insider said "simply scrapping Ofwat would not be a quick fix".
"If this were an easy way to avoid putting Thames Water into special administration, I think the government would have done it already," they added.