British Gas's move to hike electricity prices by 12.5% for 3.1 million customers will hit those already on poor-value energy tariffs, the Government has warned.
The Department for Business, Energy and Industrial Strategy (BEIS) raised concerns over the energy giant's price rise and called for "rapid progress" on regulator Ofgem's plans for reform.
British Gas said its electricity prices would go up on September 15 and would mean an average dual fuel bill for a typical annual household tariff will rise by £76 to £1,120 - a 7.3% increase.
The Centrica-owned group said it will give more than 200,000 vulnerable customers receiving the Government's warm home discount a £76 credit to offset the tariff increase.
But the price rise was condemned by the Government and saw consumer groups repeat their plea for households to switch and fix to get the best deal.
A BEIS spokesman said: "Energy firms should treat all their customers fairly and we're concerned this price rise will hit many people already on poor-value tariffs."
He added: "Ofgem has committed to taking prompt action, in consultation with consumer experts, to develop proposals including a safeguard tariff.
"We want to see rapid progress on this commitment and are ruling nothing out."
British Gas is the last of the Big Six providers to increase prices after it promised in December last year to freeze tariffs until August, with its rivals moving to raise bills at the start of the year.
Confirmation of the decision comes after a blunder on Monday saw the group mistakenly publish an incomplete statement about increasing electricity tariffs on its website.
The rise was also announced alongside half-year results from British Gas owner Centrica revealing that earnings from its consumer business plunged by more than a quarter after it lost 377,000 UK customer accounts in the first half.
Underlying operating profits from its UK home energy supply arm tumbled 26% to £381 million as the group said it was also hit by warmer than normal temperatures and the pre-payment tariff cap.
Centrica's overall underlying operating profits were 4% lower at £816 million for the six months to June 30, but shares rose 2%.
The group said the increase was its first since November 2013 and insisted its overall electricity costs had increased by 16% since then.
Centrica chief executive Iain Conn told BBC Radio 4's Today programme that while the commodity price of electricity had come down, it was facing "significant cost pressure" on transmission and distribution, as well as costs associated with government policy.
He added: "The net effect of both of these is an increase of about £62 on the average bill, and that is the main driver of the increase, combined with the fact that our electricity prices at British Gas have been some of the cheapest in the market, and actually we're now selling our electricity at a loss, which is clearly not sustainable."
But the move flies in the face of the Government, which made a pre-election pledge to introduce a price cap, although that has since been watered down.
Ofgem is now consulting on a safeguard tariff for vulnerable customers and reforms to standard variable tariffs.
Alex Neill, of consumer group Which?, said: "Hard-pressed consumers waiting to see how the Government will tackle costly standard variable tariffs will be disappointed to see prices rising.
"Customers concerned about their tariff should switch to a fixed-price deal now."
Shadow chancellor John McDonnell labelled the price hike "extortionate" as Labour said it showed the Government had failed to rein in soaring energy bills.
And Alan Whitehead, shadow energy and climate change minister, said: "Today's announcement shows that the Conservative Government has still not got a grip on the broken energy market, with companies raising prices yet again."
"At the very least the Conservatives should institute the energy price cap which Theresa May promised during the campaign," he added.