Proposals to impose excessive usage charges on households that waste water have been approved by the Commission for Regulation of Utilities.
The commission says the measure is designed to promote conservation.
It estimates that around 80,000 households around the country use more than 213,000 litres of water a year.
This is the limit set by 2017 legislation aimed at curbing excessive usage.
The CRU says between 7% and 10% of domestic metered households are using more than the annual allowance.
It has now approved Irish Water's proposals to allow for charges to be applied for excess usage.
The penalties will be set at €1.85 for each 1,000 litres used on top of the annual allowance.
The commission said consumers will have 12 months to address possible leaks and usage activity before receiving a bill.
The Director of Water and Complience at the Commission for Regulation of Utilities has said the move is not a "revenue raising measure".
Speaking to RTÉ's News At One, Laura Brien said the 'first fix free' scheme is targetted at leaks between the gate and the front door of a house
She said leaks within the household are the householder's responsibility.
Ms Brien said the charge will be capped at €500 if you take both water and wastewater services, or €250 if you take just one service.
It comes as the Head of Asset Management at Irish Water asked consumers to be mindful of the water they are using and, where possible, to make small sustainable changes to their usage.
Speaking on RTÉ's Morning Ireland, Sean Laffey said that it is the the small things that make a difference, like not running the tap when you brush your teeth.
Irish Water has launched a conservation campaign to encourage people to only use what they need.
Mr Laffey said the utility will begin to send out letters warning consumers who use water excessively over the next few months.
He admitted that Irish Water needs to fix leakages, which runs nationally at around 43%.
Mr Laffey said an aggressive water leakage campaign is under way.
Currently, he said, around 1,500 leaks a month are fixed and this is to be increased.
He added that he hoped that leakage would be reduced to around 41 or 42% by 2022 .
Research conducted by Behaviour & Attitudes for Irish Water shows that 52% of the public acknowledge that they waste water with 42% wasting a little bit of water and 10% wasting a lot.
The research also found that 25% believe that they do not need to conserve water because of the level of rainfall in Ireland.