A Thames Water spokesman said: "A large pipe, which takes treated water from Reading's main water works to Earley storage reservoir, burst early this morning.
"At 8am we had received 200 reports from customers in the RG2 and RG7 postal areas with either no water or low pressure.
"We are working to stem the flow as our engineers dig up the broken section of pipe in order to fix it while trying to minimise the number of properties whose supplies are affected.
"This is not a straightforward job. The pipe has burst right beside the canal near the entrance to our water works.
"Due to recent heavy rain the ground is already very muddy, making conditions more difficult for our engineers.
"We are sorry to everyone affected by this. We are working to fix the pipe and restore service to normal for our customers as soon as possible."