Thames Water is building a new reservoir near Oxford to hold enough water to fill 20 Olympic-sized swimming pools.

The £12m project will eventually double the capacity of the Beacon Hill Reservoir, near Farmoor Reservoir, and boost the amount of water available to households by 48m litres a day.

The scheme follows recently completed works to install a 34km pipeline running from Gatehampton to Oxford and an upgrade at the Cleeve Water Treatment Works in Berkshire.

Project manager Adrian Jack said: "Our customers are using more water so we have to make sure we can provide enough treated drinking water to meet their demand.

"The new reservoir will also provide us with resilience should there be a mechanical breakdown at any of our treatment works.

"We don't tend to have many power failures, but just in case."

Beacon Hill Reservoir stores household water treated at Farmoor Reservoir, Swinford Water Treatment Works and Cleeve Water Treatment Works at Gatehampton.

Mr Jack said the existing reservoir held 45m litres.

He added: "We are doubling the capacity, so we will be able to provide a total capacity of 90m litres of drinking water to homes between Banbury and Swindon, including Oxford."

Civil engineering firm Dean and Dyball began work in June and is due to complete the project next year.

The contractors are building two underground cells, each measuring nine metres deep, 60 metres long and 45 metres wide.

Mr Jack said: "The project is fairly well-advanced. We are hoping to have the new cells ready for service by the end of March next year."

On Dean and Dyball's website, it states the original 72-week contract had to be extended by 26 weeks due to a delay in land acquisition and the discovery of badger setts.

Strict regulations dictating work must be carried out at least 30 metres away from a sett meant the structures had to be relocated and redesigned.

Meanwhile, Thames Water is also developing plans to build a £1bn reservoir on a site between Abingdon and Wantage.

Final plans for the controversial project should be published in July next year. The company is due to submit a planning application in 2010 and aims to complete the reservoir by 2021.