THE region's biggest water company has warned that more spending is needed to meet tough new standards, despite improvements in water quality.

Northumbrian Water chairman Professor Sir Frederick Holliday said the company needed further investment to meet European and UK legislation.

Last month, the firm said domestic pricing levels were unsustainable and announced that bills could rise by 37 per cent to help pay for a five-year £800m investment in treatment works.

The company said in its annual performance report that as many as 89 per cent of its customers were satisfied with the service it provided.

During the year, the company had renewed 564km of water mains in the region to improve drinking water.

The presence of otters had also been noted in waterways in a number of towns and cities, including Durham, Sunderland, Newcastle and Middlesbrough, which was an indication of good water quality and fish stocks.

Northumbrian Water also topped the overall performance league table for water and sewerage companies published by Ofwat for 2001/2.

Dr Chris Spray, Northumbrian Water's environment director, said the company had experienced a successful year and had achieved its highest level of drinking water quality.

Meanwhile, the Environment Agency said there had been broad improvements to water quality in North-East rivers.

Large stretches of the River Tees and River Tyne are said to have seen rises in water quality.

However, rivers such as the Derwent, in North Yorkshire, designated as a Site of Special Scientific Interest, are still affected by pollution.

The River Derwent is home to valuable species, including the lamprey.

The agency said it was seeking action to remove phosphates from effluents at a number of sewage treatment works in the area before they are discharged into the River Derwent and its tributaries, in order to maintain an ecological balance.

Phosphates and other compounds such as nitrates enter rivers from land-based activities such as farming and via discharges from sewage treatment works, causing problems for fish and other river life.