Per-capita water availability in China was about a quarter of the world average and expected to fall further, the report in China Daily said.
"(China) is facing a water crisis more severe and urgent than any other country in the world," Qiu Baoxing, Vice-minister of Construction, was quoted as saying.
"We've got to solve the problem before it is too late."
Less than half the waste water generated in Chinese cities is treated and recycled.
The government aims to raise the figure to 60 to 70 per cent in five years, Qiu told a conference in Beijing on developing China's urban water supply.
And 20 per cent of water supplies in domestic cities was lost through leaky pipes, environmental engineering professor Qian Yi of Qinghua University was quoted as saying.
Heavy pollution of rivers across China makes much of its available water undrinkable.
"Short-sightedness in economic development accompanied with environmental destruction is still widespread in China," Prof Qian said.
Water shortages had struck several cities in the prosperous southern province of Guangdong. Months of drought had destroyed farmland, dried up rivers and reservoirs and allowed salt water to wash upstream and contaminate fresh water supplies, the China Daily said.
The drought in Guangdong was likely to persist, with little rainfall predicted until spring, and was moving towards the heavily populated Pearl River Delta region, which is a booming manufacturing hub, it said.
"We haven't had a single drop of water this autumn," Liu Chenguang, deputy director of the the Zhuhai Water Resources Department, was quoted as saying.
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