The government said it was prepared for a “range of scenarios” after reports that Thames Water could be on the brink of collapse.
Thames Water is under pressure over its performance and is reportedly struggling under £14bn of debt.
Business Secretary Cammy Badenoch said she was “very concerned” by the situation, adding that “we need to make sure Thames Water survives”.
The company said it is working to raise the necessary funds to improve the firm.
“Offwat is fully informed of the progress of the company’s turnaround (plan) and engagement with shareholders,” Thames Water said.
“Thames Water continues to maintain a strong liquidity position, including £4.4bn of cash and committed funding.”
Whatever happens to Thames Water, which is the UK’s largest water company, providing water to 15 million people in London and the South East, its water supply will continue without interruption.
Sky News first reported that the company was in talks with ministers and Ofwat about contingency plans for the business.
One option would be to place Thames Water in Special Administrative Regime (SAR), which would see it temporarily taken over by the government.
This route was last taken with energy supplier Bulb after it ran into financial difficulties.
Asked about the reports in the House of Commons, Environment Minister Rebecca Pow said it was not her place to comment on a company’s financial situation.
But she added that there was “a lot going on behind the scenes with Thames Water to ensure that customers are not affected and that there is a process in place to take us to the next stage if necessary”.
Earlier, Ms Badenoch said: “I know my colleagues in government are looking at what we can do. I don’t know much about what the plans will be.’
The firm did not give a reason for her departure, but it comes amid questions about the company’s financial stability.
It has come under pressure to improve its performance amid criticism over its handling of pollution and sewage leaks.
The firm leaks more water than any other water company in the UK, losing the equivalent of 250 Olympic-sized swimming pools every day from its pipes.
Last year Thames Water’s owners – a consortium of institutional investors – poured £500m into the business and pledged a further £1bn to help it turn things around.
But reports suggest the firm is struggling to raise the remaining cash it needs to pay down debt.
An Ofwat spokesman confirmed there were “ongoing discussions” with the firm about the need for a “robust and credible business turnaround plan”.
Water companies have taken on heavy debts, totaling around £60bn, since they were privatized in 1989, with Thames Water’s debt totaling £14bn.
There have been long-standing concerns at Ofwat, the water company’s regulator, about Thames Water’s ability to service that debt and raise the huge sums of money needed to upgrade its infrastructure amid rising inflation and higher interest rates.
For the past five years, its owners have supported the decision not to pay dividends to outside shareholders.
Water bills are rising, with the annual bill for the average household in England and Wales reaching £448 in April.
Bills are expected to rise again in 2025 by around £42 per household on average over a “long period”, former environment secretary George Eustis said on Wednesday.
It comes after the Times reported that bills could rise by as much as 40%, a figure which Mr Justice rejected.
“That figure (40%) is something that the industry has put forward and it’s probably because they’re about to start their negotiations with Ofwat and I think the figure will be a lot lower than that when it comes down to it,” said he BBC Today programme.