Npower faces being banned from making telesales calls to potential customers unless it resolves "major billing issues", energy watchdog Ofgem has announced.
The energy giant, one of the UK's Big Six suppliers, has until the end of August to reduce the amount of late bills it sends out to customers - or be banned from "proactive telesales" until the monthly billing target is met.
It will also be required to publish monthly progress reports on its website until the problems are resolved.
Today, Ofgem also announced it is launching a wider investigation into the firm's customer service failings – the first case to be opened under its new Standards of Conduct.
If the investigation finds that it has broken the rules, then Npower could face a financial penalty or redress payments.
Sarah Harrison, senior partner in charge of enforcement at Ofgem, said: "Npower customers have suffered service failures for too long, that's why Ofgem has secured binding commitments from Npower to reduce its bill backlog or face curbs on sales, alongside launching a wider investigation under Ofgem's new Standards of Conduct.
"Ofgem has been monitoring npower's service closely and we have been increasingly concerned about the slow progress to tackle failings. Npower's recovery plan has not delivered as far and fast as is necessary. Our analysis of complaints data also raises some serious concerns which will be thoroughly examined in our investigation."
Last December, the firm acknowledged that it was experiencing issues with its billing system and led it to making a £1 million goodwill gesture to vulnerable customers and agreeing to monthly monitoring my Ofgem.
While some progress has been made, Ofgem remains concerned that billing and customer complaints issues still remain, the watchdog added.
Earlier this week, Which? revealed that Npower was the most complained about firm in the first quarter of 2014, with 83 complaints per 1,000 customers.
Which? executive director, Richard Lloyd added: "Npower are consistently the worst for consumer satisfaction and this week topped the list for customer complaints, so Ofgem is right to take tough action.
"It is completely unacceptable for energy companies to neglect the basics of customer service. If they are unable to look after their existing customers then clearly they have no right to new ones."