Suppliers in England and Wales faced 106,693 complaints in 2014-15, a drop 13.4% compared to the previous year, the Consumer Council for Water said.
About 60% of gripes were about billing and charges, the figures showed.
The watchdog applauded the companies for their efforts, but said there was still room for improvement.
It called on suppliers to improve their service by providing "clear, accurate and timely" bills. It added that speed in fixing reported leaks was still a source of frustration for customers.
"We expect the water industry to continually try and improve its services to customers and many water companies deserve credit for rising to that challenge year after year," said Tony Smith, chief executive of the Consumer Council for Water.
"However, the gulf between the best and worst performers remains unacceptable."
Southern was the worst performing company for complaints per 10,000 connections, as it has been since 2012-13, although its complaint levels did fall by nearly 13% compared with the previous year.
"We are disappointed not to have made more progress on reducing complaints," said director Simon Oates.
"We have spent Â£13m to upgrade its billing system, which will help customers to manage their accounts online. Once this system has bedded in, we expect that we will see complaint numbers start to fall."
Four companies - Anglian Water, Affinity Water, Portsmouth Water and Hartlepool Water - recorded increases in complaints compared with the previous year.
Complaints made to water companies have fallen for the seventh successive year, but are still dominated by worries about bills.