Irish Water will have to spend €1bn to upgrade wastewater treatment plants to avoid EU fines that could run into thousands of euro per day.
The company said the European Commission has notified it in recent weeks that the number of plants failing to meet standards has risen to 83 from 71.
It must set out its plans to address the problems in the coming months.
Head of asset management Jerry Grant said waste water from only 39pc of the population was being treated to the standard required under the EU Urban Wastewater Treatment Directive (UWWTD).
An upgrade of the Ringsend plant in Dublin, which treats at least 33pc of all effluent in the country, would be completed by 2020 at a cost of €250m to €300m, but works were also needed in other areas, including in 44 towns without any treatment whatsoever.
In the company's 25-year Water Services Strategic Plan, which was approved by the Cabinet yesterday, it says poorly-performing plants are currently responsible for around 168 pollution incidents every year, but added that the number will drop to 75 by 2021 and to 20 by 2027 when capital works are completed.
However, compliance with the UWWTD will pose enormous challenges.
The case was opened by the European Commission in 2011, and if it proceeds to the European Court of Justice it could involve daily fines running to thousands of euro if the court rules that Ireland is in breach of the directive and is not taking adequate steps to address the issue.
In 2012, Ireland was fined €2m over its failure to bring in a septic tank inspection regime. It was also hit with a daily fine of €12,000 until an inspection plan was approved.
"Currently, Ringsend isn't compliant because it's overloaded and we're not meeting the standards," said Mr Grant.
"Right now, our statistics are very bad because the plant that treats at least one-third of the total wastewater load is not compliant.
"The European Court of Justice recently released an updated letter to Ireland and added additional schemes. A whole series of questions have to be responded to in the next couple of months.
"That tells us it remains an active file. It hasn't yet gone to the court, but they've certainly advanced the case. It also reflects that as we give them information about compliance issues, the EU is picking them up and adding them to the list."
Seventy-one plants were originally identified, but that number has now risen to 83. Works have been completed on some, but the commission has yet to remove them from the list.
"There are schemes which have been completed, but we haven't shown them the plant is compliant," said Mr Grant.
"We will be re-submitting our plan to Brussels by the end of the year. About €1bn will meet the targets up to 2021.
"In terms of drinking water, we believe we will be compliant, but we are not saying that for wastewater. There are issues that will not be resolved.
"We're not that dissimilar to other countries, but we are far behind in terms of basic treatment."
The Graiguenamanagh water treatment plant in Kilkenny has been temporarily shut down after low levels of Cryptosporidium were detected.
In a statement, the utility said the discovery was made last Friday, at which point a temporary treatment plant was installed. It said the Health Service Executive and the Environmental Protection Agency were immediately notified and that "the safety of the public was in no way at risk".
Local councillor Peter Cleere said there was "real concern" among locals because "almost a full week passed before people were notified of the discovery".