The Government wants the authority, which has 7,300 employees, to contract out as much operational work as possible to the private sector.
This emerged yesterday as Michael Howard, Secretary of State for the Environment, announced details of the new agency's structure. He did not say when legislation needed to set it up would enter Parliament.
Last October, Michael Heseltine, then Secretary of State for the Environment, said that legislation would be introduced in 1992, but this will not happen.
For months the Ministry of Agriculture and the Department of the Environment have been arguing over how to divide up control of the new agency, and how the National Rivers Authority - the Government's water pollution watchdog - would be incorporated into it.
The rivers authority also controls water removal from boreholes and rivers, river flood defences and land drainage. The main issue for the Government was whether the entire authority or just its pollution control arm should be incorporated in the agency.
Mr Howard said yesterday that the rivers authority would be swallowed whole but that the Ministry of Agriculture would be in overall charge of drainage and flood defences. He gave no estimate of how many jobs might be lost.