The ruling upholds a complaint by Friends of the Earth, the environmental pressure group, against an advertisement from the association, which represents major water companies in England and Wales.
Friends of the Earth said: 'Much of the UK's drinking water is not up to standard. It is indicative of the water industry's bunker mentality that it responds to legal enforcement with propaganda rather than action to clean up our drinking water.'
Britain's water was praised by the association in Water Bulletin, a water industry journal. The advertisement said: 'The World Health Organisation has laid down its own rules for water in Europe and we meet them.'
But Friends of the Earth said the claim was 'misleading' as WHO standards were the same as, if not more stringent than, European Community rules - yet British water in some areas exceeded EC levels for nitrate, lead and aluminium.
The ASA said the association had not provided sufficient information to support its claims. The association said it knew of no other country which had as good a record as Britain's in meeting EC drinking water standards.