The detection of animal and human waste in public drinking water supplies has halved over the last two years.
But tests have revealed that, despite improvements, contamination levels of E.coli are still five times higher than found in comparable supplies in England and Wales.
An Environmental Protection Agency (EPA) drinking water quality report reveals that boil water notices or restrictions were issued for 53 supplies serving about 93,000 people throughout 2009.
And remedial works have been ordered on 264 public water supplies which were found to be still potentially risky to human health by the end of 2010.
Gerard O'Leary, of EPA's Office of Environmental Enforcement, said more investment was needed to get levels of E.coli, which comes from human and animal waste, down to those of other EU countries.
"The standard for E.coli in drinking water is zero," he said.
"It can come from a number of sources, a septic tank, a sewage treatment system, from animals as they drink from rivers and streams or from inadequate disinfection."
A total of 250,000 samples were tested in 2009 with E.coli detected at least once in 27 out of 944 council-run public water supplies, down from 39 in 2008.
Elsewhere, a sixth of private group water schemes, which are usually run by groups of homeowners, were contaminated at least once.
Nine local authorities which failed to improve supplies were hit with 28 legally binding directions from the EPA in 2009.
Kerry County Council was the worst offender, with 13 directions and 53 separate remedial works ordered.
A prosecution was also taken against Galway County Council for not carrying out works within a certain timeframe.
Mr O'Leary said most recent EU figures from 2008 show rates of non-compliance with E.coli in the Irish public water system were higher than the UK and the Netherlands.
The level was 0.59pc in small council-run supplies in Ireland, which are not reported on in the UK.
In larger supplies serving more than 5,000 residents it was 0.10pc in the Republic, five times higher than England, Wales and the Netherlands (0.02pc) and Scotland (0.01pc). However non-compliance in the North was 0.22pc.
Environment Minister Eamon O Cuiv said his department has been working with local authorities and the EPA to ensure the management structures for the supply of drinking water in Ireland are of the highest standard.
The outgoing minister maintained more than €2bn was invested in water supply infrastructure between 2000 and 2010, enabling 91 projects to be completed, with another €28m allocated to councils for remedial works last year.
An additional €435m of Exchequer funding will also be invested in water and waste water infrastructure in 2011, he added.
"I have asked my department to consider the recommendations set out in the EPA's report and to determine the appropriate response to address the issues raised," said Mr O Cuiv.