Thames Water's customers will not have to find the money to cover the extra £150m the firm must spend to repair leaks after escaping a fine from Ofwat.

Yesterday, water regulator Ofwat announced that instead of fining Thames Water up to £66m for exceeding its targets for leaks, it was forcing the company to spend the extra money on repairs in London.

But the agreement also sees the firm's leakage targets relaxed - meaning it will be able to lose 16.4bn more litres from its pipes over the next four years than previously allowed.

An Ofwat spokesman said there was a legally binding agreement, which prevented Thames from passing the repair bill to its customers through increased prices.

The spokesman added: "We felt this solution was in the best interests of Thames Water's customers.

"I must emphasise that the company cannot pass the buck on to customers - it must raise the entirety of the £150m through shareholders.

"What would have happened if we had fined them is the money would have gone to the Treasury, whereas this way it goes to improving pipes and reducing leaks."

The money will pay for renewal of at least 228 miles of mains, on top of the 767 miles already being replaced in London.

The Ofwat spokesman said the leakage targets had been revised because the firm could not have reached its targets for the next two years.

He added: "The final leakage target we have set for 2010 is lower than our original target by about 5m litres per day (720m litres per day instead of 725m) so it is taking smaller steps to make sure they can be achieved.

"We felt this solution was in the best interests of customers."

The new targets are: 2006-7, 840m l/d (instead of 805m); 2007-8, 785m l/d (instead of 770m); 2008-9 remains at 745m l/d; 2009-10 720m l/d (instead of 725m l/d).

Ofwat said it would monitor progress and said Thames could be fined if it did not achieve the targets.

Many customers in Oxfordshire have protested about being told to limit water use and observe a hosepipe ban when Thames Water's latest results showed pre-tax profits of £346.5m.

Jason Hornblow, of West Hagbourne, had had enough after a leaking pipe was not fixed for nine days. He said: "When I see Thames Water's profits in a story and then see how much they need to spend on reservoirs and leaks in the same article, I get very annoyed."

Dr Evan Harris, MP for Oxford West and Abingdon, criticised Ofwat for failing to use the full extent of its powers. He said: "Thames should be fined. It's outrageous there's been a transfer of resources from customers to shareholders under privatisation."

A "whack" in its profits would send a message that the company could not increase water bills and fail to meet leakage targets, he added.

Andrew Smith, Labour MP for Oxford East, said: "I'm pleased all the pressure seems to have prompted Thames Water to take some action.

"I shall be asking Ofwat to monitor Thames Water's performance very carefully."

Thames Water spokesman Hilary Bennett said: "We're confident we will bring leakage rates down and meet these new targets.

"A lot will depend on what the winter brings - we experience more bursts in cooler weather."