Wales is to have its own water watchdog, the Welsh and UK governments have announced.

It comes after a review called for the system for regulating water companies to be overhauled and replaced.

Ofwat, the body that does the job for England and Wales now, is to be scrapped.

The Welsh government will have to decide if a new organisation will be set up or whether Natural Resources Wales (NRW) will take on the role.

Former Welsh Conservative Senedd leader Andrew RT Davies said more powers was the last thing the “failed” Welsh environmental quango needed.

The review said water remained a sensitive issue in Wales because of the flooding of Tryweryn in the 1960s, and that a Welsh regulator would better reflect the priorities in the country.

Welsh government climate change secretary Huw Irranca-Davies said he intended “to progress the commission’s recommendation for a separate independent economic regulator for Wales”.

The Independent Water Commission carried out the largest review of the sector since it was privatised, following widespread concerns over pollution, bills and bosses’ pay.

Making 88 recommendations, it called for the system that regulates water companies to be replaced with a body for Wales and a body for England.

The review said Wales’ water system was “distinct and unique”.

“Water holds deep cultural significance in Wales, and it remains a sensitive issue, particularly due to historical events such as the creation of the Treweryn reservoir,” it said.

The village of Capel Celyn was flooded in 1965 for the benefit of drinking water for Liverpool, despite 35 of 36 Welsh MPs having voted against it.

The review said the pressure facing the Welsh water system was different to England, with a higher proportion of land used for agriculture.

It added a new regulator for Welsh water companies could be integrated into NRW, or could be a stand-alone body.

“This would be a significant development, which would ensure that economic regulation of Welsh water companies better reflects the priorities and context of Wales,” it said.

The review said NRW, which already acts as Wales’ environment watchdog, should also have stronger enforcement powers.

Most customers in Wales are served by the not-for-profit company Welsh Water, with some served by Hafren Dyfrydwy, part of Severn Trent.

In abolishing Ofwat, UK government environment secretary Steven Reed promised that households would “never again” face major water bill hikes.

In a statement, the Westminster administration said it would “work closely with the Welsh government to devolve economic regulation of water to Wales”.

Irranca-Davies said it was a “once in a generation opportunity to reset arrangements created before devolution”.

Expressing concerns about the prospect of NRW taking control, Andrew RT Davies said: “Of the top 20 polluted most polluted rivers in England, five are in Wales – this happened on Senedd ministers’ watch.

“Senedd ministers must take responsibility for failings in the water industry in Wales – NRW should not be granted more powers, instead it should be closed and replaced.”