British Gas is cutting its prices for the second time in six weeks, the Centrica-owned company has said.
High fuel costs prompted millions of people to switch suppliers
Its electricity prices will fall by 6% and gas by 3%, with immediate effect.
The move means its dual fuel customers - those that buy both types of energy from the firm - will save an average £40 a year from their bills.
Experts added the move will push rivals to follow suit and drop their prices, particularly after watchdogs rapped two firms for lagging behind on price cuts.
Earlier this week energy regulator Ofgem warned customers of two utility firms - EDF Energy and Scottish Power - to switch suppliers.
The watchdog said customers of the firms could save £140 a year, as the two companies had failed to cut their gas and electricity prices recently in line with their rivals.
While Ofgem welcomed the latest reductions from British Gas, chief executive Alistair Buchanan added that customers should continue to push suppliers for price cuts by changing to cheaper companies.
"Customers are firmly in the driving seat and over 600,000 switched in the first two months of this year alone," he added.
"Customers should continue to turn up the heat on energy suppliers by taking advantage of the savings available by switching supplier - around £100 if you have not already switched."
Energywatch added that British Gas knew it had to cut prices to win back customers - and the move should "jolt other energy suppliers out of their lethargy".
"Lower wholesale prices give the green light to all suppliers to undercut each others' prices and really compete for customers. They have no excuse for doing nothing," Adam Scorer, Energywatch director of campaigns, added.
More than four million people switched their electricity or gas supplier last year in a bid to cut their bills, according to recent figures from energy regulator Ofgem.
Since then, switching between companies has reached a new peak, with more than 600,000 households doing so in January and February this year.
British Gas has lost about one million customers during the past 12 months.
Between 2002 and this year, British Gas raised its electricity bills six times, and gas prices seven times, as it passed on the then rising wholesale prices to customers.
Its latest price cuts come in response to the falling wholesale cost of energy. It announced its first tariff cut this year in February. Since then three other companies have followed suit.
The British Gas announcement comes a week after the firm was criticised for a surge in customer complaints, following the introduction of a new billing system.