BEIJING—China will roll out wide-reaching reforms in how it prices water by the end of next year, the government said Friday, charging higher prices for the heaviest urban consumers to conserve diminishing resources and spur investment.

The changes are part of a wider government reckoning that current state-controlled pricing structures for everything from water to electricity and natural gas are severely flawed. Underpriced resources help Beijing protect its citizens and industries from inflation, but experts say overuse as a result of the low costs is contributing to China's environmental woes and long-term concerns about economic sustainability.

The announcement by the National Development and Reform Commission, China's top economic planning body, marks the first stab at actual resource-sector reform after an economic-reform blueprint by top Chinese Communist Party leaders in November targeted the cheap use of resources, promising a greater role for markets in setting prices for power and other commodities.

The new system, which will be in place by the end of 2015 and will extend existing trials in some locales, will include a three-tiered pricing structure based on water use for households in all cities and some towns.

Under the plan, the heaviest consumers—or top 5% of households—will pay at least three times the base rate of water. The second tier will pay 1.5 times the base rate, while the lowest tier—roughly 80% of urban households—wouldn't be affected by the changes, according to the NDRC.