LONDON — Creditors of Thames Water have warned they are prepared to launch a legal challenge if the UK government proceeds with plans to place the utility into public ownership, adding fresh uncertainty to one of Britain's most closely watched corporate crises.

The creditor group has proposed an alternative rescue package that would include a substantial debt reduction and billions of pounds in new equity investment. However, the proposal has so far failed to secure government backing, with ministers continuing to examine other options for stabilising the debt-laden water company.

Thames Water serves around 16 million customers and carries nearly £20 billion in debt, making its future a major issue for investors, regulators and policymakers. If negotiations fail, the company could be placed into the government's Special Administration Regime, a temporary form of public ownership designed to maintain essential services.

Business analysts say the outcome could have significant implications for future investment in UK infrastructure and regulated utilities, while financial markets continue to monitor developments closely. A final decision is expected in the coming months as talks between the government, regulators and creditors continue.