In all but one of the assessed categories, Southern Water is behind target – from customer satisfaction to sewer collapses.
Politicians and the watchdog have demanded improvement from the water company, which has admitted its performance is 'unacceptable'.
Hampshire County Council’s opposition Liberal Democrat spokesman for economy, transport and environment, Cllr Martin Tod, said: 'This report is unbelievably revolting.
‘It won't come as a surprise to anyone living in Hampshire but it's still shocking to see quite how bad they are, compared to other water companies in England and Wales.
'We've seen sewage running through the streets of Winchester and pumping out into Langstone Harbour. Clearly the system is failing.
'The water industry was privatised in 1989 - they've been responsible for this region for more than three decades and still can't get it right.'
Southern Water and South West Water are responsible for two thirds of environmental incidents, the Ofwat report added.
As a result, South West Water will return £13.8m to customers while Southern Water will return £7.7m.
By contrast, neighbouring Portsmouth Water was rated as 'sector leading' in the Ofwat report.
The report also claimed that the environmental performance of many water companies has stagnated or deteriorated in recent years.
David Black, interim chief executive at Ofwat, said: 'On environmental measures some companies are still falling short and they are not doing enough to confront the grim consequences of internal sewer flooding.
'Companies lagging behind need to catch up with the best performers and they need to do so quickly.'
A spokesman for Southern Water said: 'We are engaged in the UK’s largest ever water resource; Water For Life – Hampshire is designed to protect and enhance the precious chalk river habitats of the Test and the Itchen, while providing a sustainable source of water for local customers.
'Additionally we are investing £60m at our Otterbourne water supply works to ensure we can supply water that meets the stringent standards of the Drinking Water Inspectorate long into the future.
'We know pollution incidents are unacceptable to our customers and they are unacceptable to us too.
'Our £1.5bn programme of investment in our wastewater network and equipment has us on track to reduce incidents by 80 per cent by 2025.'