A water company in Kent has been given the go-ahead to force 65,000 householders to install water meters.
Folkestone and Dover Water applied for "water scarcity status" because of the drought affecting the South East.
Following the government ruling, other water firms are expected to adopt similar measures.
Announcing the move, Environment Minister Elliot Morley said: "Water is a precious resource which we can no longer simply take for granted."
Compulsory water metering was trialled in 11 areas across the country, including the Isle of Wight, in the 1980s.
According to Ofwat papers, the National Water Metering Trials, from 1989 to 1993, showed an average reduction in domestic consumption of 11% because of compulsory meters.
The exercise involved meters being installed in about 48,000 properties on the island.
But Folkestone and Dover Water's application is the first one of its kind by a water company under the Water Industry Regulations Act of 1999.
Sutton and East Surrey Water became the fourth water firm - after Southern Water, South East Water and Mid Kent Water - to introduce a full hosepipe ban for its customers on Wednesday.
But a spokesman from Water UK, the body which represents water companies, said no other firms have plans to apply for compulsory water metering.
He said other companies in the region were simply looking at the decision regarding Folkestone and Dover Water "with interest".
Major house-building programmes are placing an additional strain on supplies in the South East, where some reservoirs are only 40% full - at a time of the year when experts say levels should be nearer 90%.
From October 2005 to 20 February 2006, south-east England received about 280mm of rainfall - 100mm less than the average for the period.
About 150 litres a day per household, on average
Bath: 80 litres approx
Shower 30-60 litres
Dishwasher wash: 16-25 litres
Washing machine load 50-100 litres
Toilet flushing: 30-40 litres per day
Source: Environment Agency and South Staffordshire Water plc
The Environment Agency announced last week it favoured compulsory metering in southern England.
The move is seen as controversial by some who regard it as rationing by price.
Labour fiercely opposed compulsory metering in opposition, calling it a "tax on family life".
The environment minister insisted that water meters would not be made compulsory in the UK but said they were needed in areas where there was a water shortage.
Mr Morley said: "At the moment we believe people should have the option of whether to have a water meter but when you have an issue of water scarcity as they have in Dover and Folkestone, compounded by a very bad drought, you have to take that into account."
The water champion for consumers in England and Wales welcomed the government's decision.
However, the Consumer Council for Water warned that consumers with low incomes needed help to meet any increase in price.
Currently 40% of customers served by Folkestone and Dover Water are metered but householders have the option to refuse.
Now the water company wants to have 90% of homes using meters by 2015.
A spokesman said: "Unfortunately because of the constraints of the area we operate in, we do need to invest more money to satisfy customers' needs.
"That means price increases."