The Serious Fraud Office has begun an investigation into Severn Trent Water.
The allegations were first raised in May 2004
The office was contacted by water watchdog Ofwat which has been holding its own investigation into the company after allegations from an employee.
The allegations concern fears the water company provided unreliable information, particularly accounting inaccuracies, to Ofwat.
A spokesman for Severn Trent said the company would co-operate fully with the fraud office.
They added that accounting firm PricewaterhouseCoopers was appointed to carry out an investigation into the claims, which were raised by the employee in May 2004.
In November 2004 the company announced it was taking the view that the matters raised had no effect on the integrity of its accounts and that customers had not been overcharged.
Ofwat began its own investigation in January 2005. The matter reported to the Serious Fraud Office (SFO) regards information over leakage.
An Ofwat spokesman said: "It is very important information which companies submit to Ofwat is reliable.
"Ofwat therefore takes very seriously instances where this may not be the case.
"It therefore referred its findings to the SFO in May this year.
"The SFO has concluded the matter is sufficiently serious to warrant a separate investigation by them."