Around 4,500 people in England and Wales are suffering from severe liver disease due to chronic hepatitis C infection, experts estimate.
The virus is carried in the blood
A Health Protection Agency report predicts this could rise to around 7,000 by 2010.
The report estimates around 200,000 people in England alone have a chronic hepatitis C infection - but as many as five out of six are unaware.
It is believed around 80% of cases are linked to the use of injected drugs.
The Hepatitis C virus, if untreated, can cause cirrhosis, liver failure or liver cancer.
Most people who contract the infection can be successfully treated. But, as the virus often does not produce early symptoms, it can go undetected - often for years.
The virus is spread through contact with infected blood. Most people contract it through sharing needles to inject drugs.
However, some people became infected from contaminated blood supplies used for transfusions prior to 1991 when new screening regulations were introduced.
Around 6% of pregnant women carrying the virus will pass it on to their unborn child.
The HPA used hospital admissions, diagnoses and liver transplant data to make their estimates - but said it was difficult to gauge the exact extent of the problem.
Professor Pat Troop, HPA chief executive, said: "Our report shows that the burden hepatitis C places on the individual and on healthcare services is high and will rise in the future.
"We have got a problem and we need to do something about it."
The Chief Medical Officer Professor Sir Liam Donaldson launched an action plan to tackle hepatitis C last year.
The plan requires the HPA to compile an annual report on the extent of Hepatitis C infection.
This first report estimates that as many as 45% of injecting drug users are infected with the virus.
And the number of people who have been infected despite only recently turning to drugs has nearly doubled to 20% in recent years.
Dr Helen Harris, a HPA hepatitis C expert, said: "Individuals who have injected drugs in the past, even once or twice, may not be aware that this has put them at risk.
"This group are not likely to be under medical care or offered testing and so need to come forward to benefit from advice and monitoring."
Once diagnosed, people can reduce their risk of developing serious liver disease by avoiding excessive alcohol consumption.