LONDON (Reuters) -Britain's regulators have failed to drive sufficient investment in the water sector, a budget watchdog said in a report on Friday, highlighting their role in causing an environmental crisis in the industry.

Water companies in England and Wales are at the centre of a public backlash over rising bills after ageing pipes and overwhelmed treatment works resulted in repeated sewage spills in recent years, polluting Britain's rivers and seas.

"The consequences of government's failure to regulate this sector properly are now landing squarely on bill payers who are being left to pick up the tab," said Geoffrey Clifton-Brown, chair of the Committee of Public Accounts, after the National Audit Office's report was published.

Average household water bills in England and Wales are due to rise by 26% on average this year.

The water sector needs "unprecedented" investment to tackle the challenges at a time when it faces a weakening financial performance, declining public trust and falling investor confidence, the NAO report said.

With Britain's biggest water supplier, Thames Water, teetering on the brink of financial collapse, the government launched a review of the water industry in October. It is due to report in June.

In response to the NAO report, the government's environment department (DEFRA) said new laws meaning water bosses can face criminal charges if they break environmental rules would help improve the sector.

"The government has taken urgent action to fix the water industry – but change will not happen overnight," a Defra spokesperson said.

Water infrastructure needs an estimated 47 billion pounds ($62.52 billion) of investment over the next five years, the NAO said, and Britain needs to build nine new reservoirs.

The report highlighted the lack of a national plan for the water sector and said regulators - Ofwat, the Environment Agency and the Drinking Water Inspectorate - did not have a good understanding of the condition of infrastructure.

It also criticised how Ofwat sets water prices for consumers, calling it difficult for investors to understand, and questioned how suitable its price review process was given the long-term nature major infrastructure projects required.

($1 = 0.7517 pounds)

(Reporting by Sarah Young; Editing by Sharon Singleton)