Defra needs to provide stronger leadership to water companies, regulators and consumers.
England is in danger of experiencing droughts within 20 years unless action is taken to combat climate change's impact on water availability, says the public spending watchdog.
The National Audit Office (NAO), in a report published on Wednesday, said some parts of England, especially the South East, are at risk of running out of water due to decreased rainfall and a need to cut the amount taken from natural waterways.
Water companies will have to reduce the amount of water they take out of rivers, lakes and the ground by more than one billion litres per day, creating huge shortfalls in the coming decades, the NAO warned.
The Parliament's auditor predicted that four billion litres of additional water supply will be needed per day by 2050 to counter the growing risk of drought from climate change.
The country's total water supply is forecast to drop by seven percent by 2045 because of climate change and the need to scale back the amount of water taken out of England's waterways and soils.
The amount removed will need to be slashed by almost 500 million litres a day to ensure sustainable biodiversity can continue, while drier weather is expected to see a 600 million daily reduction in rainfall.
According to NAO figures, the daily demand for water in England and Wales stands at 14 billion litres, with the equivalent of three billion litres of that lost through leakage. People on average use 143 litres of water on a 24-hour basis.
Gareth Davies, the head of the NAO, was critical of ministers in his report for failing to lead on the issue of water sustainability, with personal water consumption having risen every year for the past five years.
Mr Davies, the comptroller and auditor general, has called on the Department for Food, Environment and Rural Affairs (Defra) to co-ordinate a national approach to encouraging consumers and public bodies to reduce their water usage in a bid to avoid water shortages in the coming decades.
He said: "The government has made limited progress on reducing water consumption, tackling leakage and sharing water resources between regions in the last five years, but rapid progress is now vital for the Government to deliver its objective of a resilient water supply.
"Defra needs to provide stronger leadership to water companies, regulators and consumers."
The report states that water companies over the past five years have made little or no progress in reducing water consumption and cutting leakage.
The NAO has urged the government to monitor progress on the water suppliers' pledge to reduce leakage by at least 15 percent by 2025.
Ministers in 2018 also committed to announcing a personal water consumption target but have yet to follow through on the promise, said the report.
The NAO said it wanted Defra to promote a "more coherent and credible message" about water efficiency and develop a plan to evaluate its impact, with Whitehall leading on getting the message across that consumers need to save water.
Defra has been pushed to work with other Government departments to reduce water consumption by large public sector users, such as hospitals and schools.
It should also better understand how willing the public are to pay more in terms of bills in order to improve water infrastructure, said the NAO.
The regulator Ofwat and the Environment Agency should also have a role to play in regularly reviewing water companies' progress on reducing consumption and leakage, the report recommended.
Water UK said companies were working on reducing leakages while also attempting to ensure household goods coming on to the market had improved water consumption.
A spokesman for the trade association representing the major suppliers said: "Water companies are working hard to improve water efficiency and have committed to triple the rate of leakage reduction by 2030, as well as delivering plans to reduce, by a fifth, the average amount of water used per person by 2050.
"In addition, we are urging the Government to use the Environment Bill to introduce measures, such as mandatory water efficiency labelling on white goods and stricter building regulations, in order to tackle water wastage."
A spokesman for Defra said: "We recognise that we need to work harder than ever to ensure that we all have enough water in the future and that is why we are already working towards many of the report's recommendations.
"The recently published National Framework for Water Resources sets out a bold vision for bringing together consumers, businesses and industry to safeguard the future of our water resources while ensuring that our natural environment is protected for future generations."
Patrick Daly is the PA political correspondent.