Thames Water is reviving its plans to build a huge reservoir, despite repeatedly failing to hit leakage reduction targets.
The environment agency has called on firms to restrict water use
The company, currently losing a third of its water daily, 915 million litres, is buying up land in South Oxfordshire.
Residents object to the scale of the reservoir which could cover up to four square miles.
Thames says the project is needed to meet growing water demand and planning permission may be sought in two years.
Last week the firm was publicly admonished by the water regulator Ofwat for missing its targets for cutting leaks for the third year running.
It said Thames loses enough water daily to fill 366 Olympic-sized swimming pools.
But the company, which says it is working hard to improve leakage repairs, believes the new reservoir is necessary to supply water to customers in London and the South-East.
It says the scheme, earmarked for an area southwest of Abingdon in the Vale of the White Horse, would increase its resources for supplying water to the capital by 10%.
The plans to massively increase its water storage capacity date back to 1990.
Chief Operating Officer Gerry England told the File On 4 programme: "It's not something that is going to improve the situation in the next few years.
"It's probably going to be a 15 to 20 year project before we can realise the benefits."
Local residents, alarmed at the prospect of the 85 ft high earth banks which would surround the reservoir, told File On 4 that neighbouring land was steadily being bought up by Thames.
They fear the plans have made it impossible to sell their homes to any buyer other than Thames Water. Some feel they have been left in the dark over the future of the land since Thames first began promoting the idea over a decade ago.
"At the beginning we were horrified about the reservoir," said Vera Woodley, a semi-retired farmer from Steventon.
"But then it all quietened down and we forgot about it a bit. Now it's all come back, we're horrified all over again.
"I don't think a reservoir is necessary. They should put more meters in people's houses and repair a lot more leaks."
The Chairman of the London Assembly's Environment Committee, Darren Johnson, agrees.
"I think it's totally irresponsible to be looking at putting in new reservoirs when you have got a leakage rate of over 30%."
He added that if Thames cut its leakage rate by one third it would achieve its aim for a 10% improvement in water storage "without flooding half of the countryside."
Mr England conceded to File On 4 that Thames was buying up land in South Oxfordshire but insisted there no official strategy to buy up plots as soon as they became available.
"It's better for the landowners if we can arrange by mutual agreement to purchase the land rather than going through compulsory purchase orders at some time in the future."
File On 4: BBC Radio 4, Tuesday 19 July, 2005 at 2000 BST and repeated on Sunday 24 July, 2005 at 1700 BST.