It warns that another series of dry winters would put Britain back on drought alert.
The government said its draft Water Bill would build resilience into the UK's water infrastructure.
The Blueprint for Water report measures the Government's performance against 10 steps to sustainable water by 2015.
It applauds ministers' commitment to tackle unsustainable abstraction from rivers and wetlands, extend the use of metering at a fair price and develop a catchment-based approach to managing the water environment.
But it says ministers are still failing to produce a long-term, sustainable approach which works with our natural water systems.
The groups want much more use of moors, marshes and plants to store and clean rain water, instead of allowing it to run straight into rivers and thus increase the risk of flooding. This would help tackle droughts as well as floods.
The chair of the Blueprint for Water coalition, Carrie Hume, said: "Lack of action to fix our broken water system is a false economy. We cannot continue to lurch between flooding and drought which is damaging for people, businesses and wildlife."
The Blueprint for Water was launched in November 2010. The Government is scored every two years on its progress. More
