Regulators may have breached environmental law by allowing water companies to discharge sewage outside of exceptional circumstances, the Government watchdog has found.

Combined sewer overflows (CSOs) are only supposed to be used after periods of unusually heavy rain to prevent the system backing up and flooding people’s homes and businesses with sewage.

But the Department for Environment, Food and Rural Affairs (Defra), the Environment Agency (EA) and Ofwat may have misinterpreted the law and allowed water companies to pollute England’s waterways outside of these circumstances, the Office for Environmental Protection (OEP) said.

Discharged sewage can harm wildlife and wider river ecosystems because chemicals entering the water – from pharmaceuticals to phosphates – are toxic or fuel the rapid growth of algae, which can choke out other forms of life by consuming all the oxygen.

It can also be a source of E. coli, which can cause diarrhoea, stomach cramps and fever when ingested by swimmers.

The OEP said it began its investigation after getting a complaint last June about the monitoring and enforcement of water companies’ management of sewage.

It has now sent information notices to all three public bodies setting out the details of the possible failures and to ask whether they agree and if so, how they propose to remedy them.

Helen Venn, the OEP’s chief regulatory officer, said: “The guidance provided by Government to regulators, and the permitting regime they put in place for the water companies, possibly allow untreated sewage discharges to occur more regularly than intended by the law without risk of sanction.

“This is what has created the possible failures to comply that we have identified.”

The OEP said its probe aims to clarify the roles and responsibilities of the public authorities and determine whether they have failed to comply with their duties.

If a failure is identified, the OEP will seek to improve regulation, it said.

A Defra spokesperson said: “The volume of sewage discharged is completely unacceptable.

“That is why we are the first government in history to take such comprehensive action to tackle it, driving forward more investment, stronger regulation and tougher enforcement – and it’s why we are introducing a legally binding target to reduce storm overflows.

“While we do not agree with the OEP’s initial interpretations, which cover points of law spanning over two decades, we will continue to work constructively with the OEP on this issue.”

The EA and Ofwat also have their own investigations into the water companies.

An Ofwat spokesperson said: “Our position at Ofwat remains clear – water companies’ performance on the environment is simply not good enough.

“We have pushed companies to take urgent action to cut sewage discharges, have imposed fines of £250 million in the last few years alone and we are currently running our biggest ever investigation into six companies on how they manage sewage treatment works and sewage discharges.

“We will keep pushing for the change and the improvements that the public rightly expects and where we can learn lessons or do things better, we will do so.”

For the EA, the potential failures relate to setting permit conditions for CSOs and reviewing and enforcing them.

Ofwat may have failed to ensure sewerage undertakers comply with their duties in effectually dealing with sewage, while Defra may have failed to make enforcement orders against such companies.