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

Northumbrian Water chairman Professor Sir Frederick Holliday said the company faced the need for further investment to meet both European and UK directives.

Last month it said current domestic pricing levels were "unsustainable" and announced that bills could rise by as much as 37 per cent to help pay for a five year £800m investment programme in new and extended treatment works.

The company, which floated on the London Stock Exchange yesterday, said in its annual performance report that as many as 89 per cent of its customers were satisfied with the overall service it provided.

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

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 a good indication of water quality and good fish stocks.

Northumbrian water also gained first position in 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 overall and had achieved its highest ever level of drinking water quality.

Meanwhile the Environment Agency says there have been broad improvements to water quality in rivers in the North-East.

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

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

The Derwent is host to a whole host of valuable species, including the lamprey, one of only two surviving remnants of one of the most primitive invertebrates the Agnatha or ''jawless fish''.

The agency said it was seeking action to remove phosphates from effluents at a number of sewage treatment works in the area before it is discharged into the 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.