The regulator Ofwat sets the amount water companies operating in England and Wales can charge their customers every five years, and rules how much the companies are allowed to make from their investments.
By 2015 bills will fall by 3 pounds to 340 pounds on average, it said.
While not as much as in the draft ruling, this is between 7 and 10 percent lower than the amount that companies in the sector -- which include Pennon, Northumbrian Water, Severn Trent and United Utilities -- had originally wanted to charge.
Ofwat said this championed consumer interests, clamping down on water firms, many of which have earned good profits on the back of increasing bills for customers.
The regulator also said it has allowed companies to make the biggest ever investment in the water infrastructure in England and Wales, totalling 22 billion pounds over the five-year period.
"People can shop around for the best deal on many things, but not water. Our job is to do this for them," Ofwat Chief Executive Regina Finn said in a statement.
However, Ofwat has kept the return that water companies are allowed to make on their capital -- critical for maintaining dividends -- at 4.5 percent on a post-tax basis, which was at the low end of analyst expectations when it was first announced in the draft determination in July.
Water companies are traditionally seen as reliable dividend stocks for investors, but many analysts believed the ruling could force some to cut payouts in the future, or even raise cash from the market, if they decide they are getting inadequate returns from spending plans.
