GLOUCESTER, England, July 24 (Reuters) - Hundreds of thousands of homes in western England were without running water on Tuesday after the worst flooding for decades as emergency services battled to stop rising rivers cutting off power.

Police, firefighters and the military fought through the night to erect barriers to protect a substation which provides electricity for half a million people as flood waters rose to 60-year highs, submerging vast tracts of land.

The rising River Severn peaked two inches below the main wall which protects Gloucester city centre and the Walham power substation, the police said.

"River levels have peaked and the level is now falling, but due to the current high volumes of water this is happening quite slowly," a police spokeswoman said. "We are not out of the woods yet but it's looking more promising."

The Met Office said the weather across most of the country should be dry on Tuesday although the outlook for the next couple of days is unsettled.

The Environment Agency said seven severe flood warnings were still in place across central and southwestern England.

"We have not seen flood levels of this magnitude before," an Environment Agency spokesman said. The previous high was in 1947.

Environment Secretary Hilary Benn, in an update to parliament on Monday, warned that the emergency was "far from over and further flooding is very likely".

Water levels are expected to peak on the River Thames in central England on Tuesday.

Up to 140,000 people in Gloucester, Tewkesbury and Cheltenham may be without mains water for possibly two weeks after pumps at Severn Trent's Mythe Water Treatment Works in Tewkesbury became engulfed in flood water.

Pete Bungard, chief executive of Gloucestershire County Council, said 350,000 people were without water and thousands had been displaced from their homes.

More than 150,000 bottles of water are being distributed in the region and Severn Trent said it was setting up Bowser water tankers at 900 locations across the area.

"Saving 500,000 people from being without electricity for 4 to 5 days shows everything is being done," Bungard said.

Ken Ticehurst, 41, an IT worker, said police had been guarding the doors to a local supermarket in Gloucester on Monday night to stop panic buying after reports of fighting in local food stores.

"There's a weird feeling of being under siege," he told Reuters.

Prime Minister Gordon Brown visited Gloucestershire on Monday and promised more money to help with drainage and flood defences.

"What we saw here was a month's rainfall in some places in an hour, something that was quite unprecedented, and put enormous pressure on water and the emergency services," he told reporters.

The Environment Agency has been criticised for its speed of response to the floods, but Benn praised its work.

He denied that spending on capital investment in flood defences had been diverted away from the agency's budget, saying it had increased from 300 million pounds to 600 million pounds during the past 10 years.

REUTERS