Britain's biggest water supplier said in a statement that GBP 500 million ($630-million) of new equity will "not be provided by Thames Water's shareholders" this month.
The company added it was in "ongoing" talks with industry regulator Ofwat over a plan that is "affordable for customers, deliverable and financeable for Thames Water, as well as investible for equity investors".
The cash represented most of a GBP 750-million funding lifeline that had been previously agreed with investors last July to stay afloat.
Britain's domestic Press Association news agency said Ofwat had refused to bow to Thames Water's demands for concessions, which it said included a 40-percent jump in water bills that would worsen the country's cost-of-living crisis.
Other concessions would reportedly include an easing in capital spending requirements and leniency over regulatory penalties.
Ofwat said Thursday that Thames Water needed to seek other solutions for its finances, but stressed that customers would be unaffected.
"Safeguards are in place to ensure that services to customers are protected regardless of issues faced by shareholders of Thames Water," said an Ofwat spokesperson.
"Today's update... means the company must now pursue all options to seek further equity for the business to turn around the performance of the company for customers."
Thames Water, which supplies more than 15 million homes and businesses in London and elsewhere in southern England, is saddled with debts of almost GBP 15 billion that have placed it at risk of nationalisation.
The group has also faced fierce criticism over missing targets to reduce leaks and slash sewage discharges into rivers, despite major infrastructure investment.
A record number of storm drains overflowed with sewage last year in England, official statistics showed on Wednesday, angering campaigners wanting cleaner rivers and seas.
Environmentalists have increasingly voiced outrage at the rise in pollution on the UK's beaches and waterways, and have pointed the finger at privatised water companies.
In a separate development on Thursday, researchers have revealed that high levels of E.coli, a bacteria found in human waste, have been found in a stretch of London's River Thames that will feature in this weekend's Oxford and Cambridge Boat Race.
The bacteria was discovered in water near the Hammersmith Bridge in west London, according to testing conducted by anti-pollution campaign group River Action and the Fulham Reach Boat Club.
The annual Boat Race features competing rowing crews from England's two oldest universities Cambridge and Oxford. It will be held this Saturday.
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