Households across swathes of Britain are refusing to pay their water bills in protest against pollution.

Pennon Group, which owns South West Water and was at the heart of a parasite outbreak in Devon earlier this year, has warned investors that a growing number of customers are withholding cash in so-called “bill strikes”.

It comes after pollution in the company’s system in Brixham caused dozens of cases of sickness and diarrhoea, prompting ￡3.5m in compensation to those affected.

In documents issued to investors, bosses said: “Customers are actively withholding water bill payments in protests over pollution and water quality.”

This has been driven by environmental activists, Pennon said, who are “publicly encouraging the boycotting of water bill payments across the water industry until storm overflow issues are resolved”.

The problem has already led to Pennon taking a legal stake in a customer’s home after they refused to pay.

So far, Pennon said, that the impact on profits remains “insubstantial”.

However, bosses recognise that the revolt could grow over the time it takes to tackle sewage pollution and leaky pipes, which could impact future profitability.

The issue of water pollution has been thrust into the spotlight in the past few years, piling pressure on companies across the country.

Pennon was attacked by critics in May for paying out a ￡127m dividend during the parasite outbreak, which led to the company warning around 16,000 customers to boil water before drinking it.

At the time, a source in the Conservative government said: “It is completely unacceptable for this company to be paying a dividend to shareholders given its appalling record, including millions of pounds in fines last year for pollution offences and poor performance.”

Campaigners held a protest outside Pennon’s headquarters last month, as they called for cuts in sewage spills and better water quality.

It came a year after Pennon was given a record ￡2.2m fine for illegally dumping sewage into rivers and sea.

Just this month, regulator Ofwat cleared South West Water to raise annual bills to ￡561 within the next five years, up from ￡497 today.

Shares in Pennon fell almost 5pc on Thursday morning amid dwindling investor confidence in the water sector, which has been fuelled by Thames Water’s potential collapse.