China's $410bn (£264bn) sovereign wealth fund said it had bought a minority stake in Thames Water, the water network that serves London, marking the fund's first acquisition in Britain.
China Investment Corporation (CIC) said it had bought an 8.68 per cent stake in Thames Water through a wholly-owned subsidiary. It did not say how much it paid.
The deal follows talks in Beijing this week with Chancellor George Osborne, who is looking to boost investment in British infrastructure as a way of lifting the British economy.
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Osborne welcomed Friday's announcement.
"It is a vote of confidence in Britain as a place to invest and do business," he said. "This investment is good news for both the British and Chinese economies."
Lou Jiwei, the chairman of the CIC, has previously said China is keen to invest in the ailing infrastructure of Western countries, especially Britain.
Friday's deal gives the CIC a chance to cash in on the stable, long-term returns offered by British water companies. The deal follows Hong Kong tycoon Li Ka-shing's move to buy British utility Northumbrian Water last year for just under $4 billion.
A rise in inflation last year, from which British water utilities are shielded through regulated returns, has increased the appeal of such companies to infrastructure investors seeking the safety of predictable, long-term cash flows.
The deal marks the second recent acquisition of a stake in Thames Water by a foreign investor after Abu Dhabi Investment Authority acquired 9.9 per cent in Kemble Water Holdings, the holding company that controls the utility.
Kemble acquired Thames Water, which supplies water and sewerage services to London and some surrounding areas, from German utility RWE in 2006 for £8bn.