Water firms in England and Wales must cut the average household bill by £50 - or 12% - over the next five years, the regulator has said.
In a report published on Monday, Ofwat said the average bill will fall by 12% before inflation as part of a price review conducted every five years.
The specific reduction in bills depends on which company a home-owner is with.
Northumbrian customers will see an average fall of 26% of their bills whereas Hafren Dyfrdwy customers will see an average reduction of just 3%.
The decision is part of Ofwat's approval of a huge £51 billion investment plan for water companies in the highly regulated sector.
The regulator also demanded that leaks are cut by 16% to transform the industry and improve efficiency, as part of a £6 billion cost-cutting exercise.
Its package of changes, which has been a year in the making, also includes £13 billion earmarked for "new and improved services that go above and beyond water companies' day-to-day operations" including £1 billion on cutting the impact from flooding.
It also includes a commitment from water companies to produce zero net carbon emissions by 2030 and reducing leaks by 16% by 2025.
Building work includes a new reservoir in Hampshire and the construction of a pipeline connecting water supplies from North Lincolnshire to Essex.
The framework, which comes into effect on April 1 2020, follows draft determinations set out in July.
Water companies had previously warned they could challenge any orders made by Ofwat.
Ofwat chief executive Rachel Fletcher told the BBC the review set much tougher targets for the benefit of both customers and the environment.
She said: "It is a really good package that we are announcing today, with massive investment to improve services and the environment for the future - in fact probably the greenest settlement we have ever put in place."
The final report came as Bedfordshire residents had been left without water for three days due to a fault with a broken valve in Leighton Buzzard, home to around 40,000 people.
Service had resumed for many customers on Sunday afternoon, but Anglian Water gave itself a deadline of midday on Monday to restore water to all affected homes.
Asked about the issues in Bedfordshire, Ms Fletcher said: "Things will go wrong from time to time and, frankly, what's important when that happens is that companies get on it and address the issue quickly, that they support customers during outages like we have seen in Leighton Buzzard.
"We are pressing companies to do better. They will face penalties if they have interruptions, they will face penalties, frankly, if customers are not happy with the service that they are getting."
Ofwat's review has been welcomed by consumer groups.
Tony Smith, chief executive of the Consumer Council for Water, said: "Most customers will see this as a good deal but more must be done to make sure everyone can afford their bill and ensure there is sufficient investment in safeguarding these essential services long into the future."
"Water companies have had it too good for too long. At first glance, it appears Ofwat has listened to our repeated calls for it to get tougher and tip the balance back in favour of customers.
"But we'll be keeping a close eye on the performance of companies to make sure customers are not short-changed."