Thames Water announced that, although the drought was "serious", it was not yet grave enough to warrant applying for measures that would change the look of the capital and ruin car wash and gardening firms.
Thames Water insisted that it had not made the decision for PR reasons and said it would review the situation on a weekly basis.
The Environment Agency complained the German-owned company should have immediately sought an order because of the water shortage facing the capital. If the drought does turn out to be the worst in 100 years, water companies may seek to extract more water from low rivers, seriously damaging wildlife.
The Environment Agency said that it was prudent for Thames Water to seek a drought order as a precaution against more dry spells - it would not have to enforce any of the restrictions. "They say things about small business but they don't have to put all the restrictions into force straight away," said a spokeswoman.
A drought order takes an average of six weeks to be approved by the Government. The orders would ban the washing of building exteriors and cars, buses and trains (apart from their windows); the watering of public parks and sports venues; the filling of private swimming pools; and the supply of public fountains.
Thames Water, which began a hosepipe ban in April, said its decision not to seek an order had been "finely balanced". It said it was "very mindful" of the impact a drought order would have on individuals and businesses.
Richard Aylard, Thames Water's environment director, said: "We might get a drought order next week but with the rain forecast it's unlikely, but who knows. We don't take decisions on PR grounds. This is a water resources decision about responsible supply to eight million people in London."
Seven water companies in the South-east have hosepipe bans. Two, Mid Kent and Southern, have applied for a drought order. Ministers granted Sutton and East Surrey Water the first drought order for a decade this week.
Mr Aylard told BBC News: "We are more fortunate than some water companies. We can take water from the River Thames. The river is low but it is stable and we are still able to take water out of it so our reservoir levels are actually going up, not down."Reuse content