The defunct Office of the Deputy Prime Minister (ODPM), led by John Prescott, is among government departments named and shamed in a report from the House of Lords Science and Technology Committee.
The powerful all-party committee said Prescott had failed to consider water shortage warnings 'at an early enough stage' when planning thousands of new homes for the Home Counties.
Prescott pledged in 2003 to build 200,000 new homes to tackle the housing crisis in the south-east.
But committee chairman Lord Selborne said there was 'quite a muddle' in the way the ODPM and Defra measured increased water demand when planning new housing schemes such as the Thames Gateway.
'There were many meetings, but we didn't feel that the water companies themselves were sufficiently consulted. We felt that either they had failed to take the opportunity themselves or that the ODPM had failed sufficiently to take account of their own views. It would have been throughout John Prescott's succession.'
He added: 'The (government's) belated estimates of the growth in demand are wholly unconvincing. Along with the Environment Agency, they must ensure that the water companies' plans factor in what is bound to be a significant increase in demand.'
On Sunday Prescott landed in more hot water in the US when he allegedly took a 200-yard trip by Jag to make a speech at Rhode Island on the danger of global warming.
Shadow Environment Secretary Peter Ainsworth told ITV News: 'I don't know how John Prescott has the gall to lecture anyone about climate change.'