Japan has for the first time enacted a law allowing private sector companies to obtain the concession to operate water supply services.
The revised Water Supply Act was approved with a majority vote at a Lower House plenary session of the Diet on Thursday.
The new legislation is aimed at helping to shore up water supply businesses by municipalities, which suffer from aging facilities and a shrinking population.
The new law encourages local governments to collaborate across a wider region to integrate their facilities for greater efficiency.
It also allows municipalities to sell the rights to run their facilities to private firms while retaining ownership. The legislation expects the transfer of concessions to the private sector will lead to the introduction of corporate management know-how.
However, during the discussions in the Diet on Thursday, the opposition camp argued that public water utilities provide safe and reliable water, and the revision of the system would result in selling off public businesses to private firms which only pursue profits.
They added that the central government should study more cases overseas of privatized water supply services, which had failed and were eventually reverted to public utility status.
Under the new law, central and prefectural governments require private water suppliers to submit documents on water quality management and conduct on-site inspections, and they could withdraw the concessions for illegal cases.
As of the end of March 2017, 15 percent of water pipes across Japan had exceeded the maximum useful life of 40 years set by law.
The number of workers engaged in water supply services has declined by about 30 percent since 30 years ago due to a shrinking population.