Britain faces increasingly extreme weather conditions and urgently needs to improve its anti-flood defences and preparations for severe drought, says the Environment Agency.

Its stark conclusion follows detailed analysis of weather patterns, river levels and flooding events in 2012, which revealed that some areas suffered record levels of drought before facing some of the worst flooding ever.

Last year, flooding was recorded on 20% of days and drought on 25% of days, with rivers such as the Tyne, Ouse and Tone going from their record lowest flows to record highest in four months.

"It was an extraordinary year and it serves as a warning for the country that we face a future in which there are likely to be more and more extreme weather events," said Lord (Chris) Smith, the agency's chairman. "We need, very urgently, to prepare plans to deal with these extremes."

In early 2012, the Environment Agency issued a series of warnings about desperately low levels in rivers, reservoirs and groundwater aquifers. The previous year was one of the driest on record, and reservoirs and boreholes were at record lows for that time of year. In winter, they should have been full and the agency warned that only a downpour lasting weeks could avert a serious summer drought.

Britain got its downpour, but it lasted months, with previously parched fields turned into quagmires and more than 8,000 homes flooded. "We saw environmental damage caused by rivers with significantly reduced flows, hosepipe bans affecting millions and farmers and businesses left unable to take water from rivers," said Smith. "But we also saw the wettest year on record in England."

A dramatic illustration of the extraordinary changes in weather is revealed by water flow measurements in the Tyne. In March, flow was 28% of its long-term average for that time of year. By June, after months of heavy rain, the flow hit 406%. Similarly, at the Gold Bridge gauging station on the Ouse in East Sussex, flows went from 28% of their average figure in March to 310% in July.

Smith said such wildly fluctuating figures indicated the desperate need to plan for feast and famine over water levels. In the case of drought management, more farmers needed to be encouraged to build small reservoirs, while agreements allowing some companies to abstract water from rivers indefinitely would have to be changed. "We simply cannot have those types of agreements any more, and we are now pressing to limit them," said Smith.

New figures from the Met Office suggest that Britain could experience a severe short-term drought – such as the one in 1976 – every 10 years. Previous estimates put this figure at one in 50 years. With the population of London and the already water-stressed south-east of England set to grow by 23% by 2035, the problem of a serious lack of water is becoming acute.

Although anti-flooding defences were installed last year in Nottingham and Keswick and 93 defences are due to start construction this year, Smith said far more measures would be needed. "It is money well spent. For every pound you spend on defences, you save £8 in damage caused by flooding."