It also called for the current drinking water team within the Ministry of Health to be dismantled and replaced by a Drinking Water Regulation Establishment Unit.
"Pending such changes, the Ministry of Health should, through the DWAs and medical officers of health, take immediate steps to enforce the current law in the hope the recalcitrant water suppliers will be called to account before it is too late to prevent another outbreak of waterborne disease," the report said.
The inquiry panel said the failure to provide safe drinking water in Havelock North was not limited to the Hastings District Council.
"These findings point to a widespread systemic failure among water suppliers to meet the high standards required for the supply of safe drinking water to the public.
"The industry has demonstrated that it is not capable of itself improving when the standards are not met."
It noted that while water in Auckland and Wellington was safe to drink, elsewhere at least 721,000 Kiwis were drinking water that was "not demonstrably safe".
It also pointed out that during the inquiry experts estimated that in addition to mass outbreaks, between 18,000 and 100,000 sporadic cases of waterborne illness occurred each year.
As well as chlorinating public drinking water networks, the inquiry also advised that "self-suppliers", such as prisons, schools, marae - any situation where water was being supplied to numbers of people above that of an average household.
The report pointed to a number of submissions that highlighted that some communities were opposed to treatment, particularly chlorination, which was perceived to produce adverse taste and odour effects.
There was no compelling evidence that chlorination posed a health risk, compared with the "natural" pathogens found in drinking water, the report said.
On the matter of taste and odour concerns, several experts said this perception arose because consumers of untreated water often only experienced a chlorinated supply when contamination had recently occurred and the system was dosed at a much higher level than usual.
"Taste and odour problems will be minimal or non-existent in a properly run and stabilised chlorination system. This may take some months from when chlorination is first introduced, but consumers quickly adjust and there are simple ways to reduce any taste and odour problems during the initial period (such as leaving drinking water to sit in a refrigerator overnight)."
The Government had written to mayors and DHBs around the country, urging them to check water supplies as it urgently considered the inquiry's recommendations, including setting up an independent drinking water regulator.
Attorney-General David Parker said the report made for "sobering reading", noting that New Zealanders' drinking water was "often inadequate".
"Regulation and enforcement have been poor. We must do better. We need to get this right in order to avoid a repeat of the series of failures which has led to so many people in Havelock North and other areas of New Zealand getting sick."
