Severn Trent Water, which is expected to announce increased profits today, loses more than 100 million gallons every day, a damning report said.
This is the second highest figure in the country, after Thames Water, and represents a quarter of all the water it distributes.
The figure, which comes to 33 gallons for every property each day, was highlighted in a House of Lords report into the state of the water industry.
The company is currently being investigated by the Serious Fraud Office over claims it inflated its leakage figures so it could justify charging customers for repairs to pipes.
But a spokesman yesterday said the figure in the report was correct.
Last year, Severn Trent announced profits of £306 million. The company is expected to announce figures for 2005-6 today.
A Severn Trent spokesman said: "We are spending about £25 million a year on finding and fixing leaks.
"We are modernising our network by replacing or improving up to six miles of pipes a week. The leakage level is down around a third compared with 1995."
But the House of Lords Science and Technology Committee demanded "a significant reduction in the unacceptably high level of leakage from water companies' pipes". It also warned that it may be necessary to install meters in homes, to stop customers wasting water.
The committee accused Ofwat, the official watchdog, of failing to ensure supplies were adequate.
Committee chairman Lord Selborne said: "We are concerned that Ofwat has not taken this problem seriously enough."
He urged the Government to make it easier for water companies to introduce universal metering of customers, while providing extra help through the benefits system for people struggling to pay their bills.
The report revealed a "very high level" of unpaid water bills and said those who could afford to pay but refused to do so should be disconnected from the water supply.
The peers called for new regional water boards, with greater consumer and environmental representation, to work out the best balance of measures for each part of the country.
There should also be more re-use of water both by the water companies and in new housing developments, including the recycling of wastewater and rainwater, the report said.
Ofwat ruled earlier this year that the company had overcharged customers by £42m by incorrectly calculating levels of income and bad debt - and ordered Severn Trent to repay the money.