However, if the monthly consumption exceeds 20 kilolitre then charges for entire supply of water will have to be paid, according to officials.
The decision was taken at a meeting of the Delhi Jal Board chaired by Chief Minister Arvind Kejriwal at his residence here in Kausambi.
"All domestic consumers having metered connection will get 20 kilolitres of water free of cost from January 1. No charges such as sewerage charge and water cess will be levied on beneficiary of the free water scheme," newly-appointed Delhi Jal Board CEO Vijay Kumar said.
In a tweet, Kejriwal said "It is duty of any responsible govt to provide 'lifeline water' to its citizens. We may debate the quantum but can we argue against the principle?"
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The Chief Minister, who was unwell and skipped office, chaired the meeting of the DJB at his residence in Kausambi.
In its manifesto, the Aam Aadmi Party had promised to supply 700 litres of water free of cost daily to each household. 20 kilo litres of water will mean average of 667 litres of free water daily.
Currently, the DJB has around 18 lakh domestic consumers out of which nine lakh have metered connection. The water agency has decided to launch an awareness drive to encourage remaining nine lakh consumers to install water metres and bring "accountability into the system"
"The consumer can use any quantity of water daily. But the total monthly consumption should not go beyond 20 kilo litres (20,000 litres) to avail the benefit," said an official.
He said Group Housing Societies have been kept out of the scheme as they are bulk water consumers.
The official said a sizeable number of consumers have unauthorised water connection from where the agency does not get any revenue.
Last month, Delhi Jal Board had planned to increase the water tariff by 10 per cent from January to improve its finances.
It is not immediately clear whether government will charge for water being supplied to over 1,600 unauthorised colonies across the city.
A DJB official indicated that the water agency may revise tariff, which is an annual exercise.