Nasrin Barwari said on Thursday the problem has been worsened by a US proposal to shift $2 billion earmarked for the sector to security needs.
"It is very critical that grants get expanded for the sector," the minister said in Baghdad.
The US government promised to pump $18.4 billion into reconstruction projects in Iraq after last year's invasion.
But a month ago it revealed a plan to shift some of this cash into beefing up the country's security forces in response to anti-US attacks.
An audit also revealed that only $1.1 of the reconstruction funds had been used and reconstruction projects were slow in taking off.
Barwari said this move would affect her ministry the most, with $2 billion out of a proposed $4 billion set to be siphoned off.
Iraq's interim government will present an updated list of priority areas for funding at a two-day donor gathering in Japan next week, placing "water, sanitation and electricity at the top", the minister said.
The US has diverted rebuilding
funds to boost Iraq's security
Donor countries, aid agencies and World Bank officials are due to meet in the Japanese capital to discuss Iraqi reconstruction, which has floundered amid the deteriorating security situation.
Many Iraqis are still without basic services such as water and electricity.
The interim government is unhappy that pledges made last year at a similar gathering in Madrid have largely failed to materialise.
More than 90% of the country's cities have no decent sewage system, while only two thirds of Iraqis have access to safe drinking water, Barwari said.
"Our vision is to provide 100% coverage for water and hopefully 50% at least, coverage for sanitation and sewage within the coming five to six years," the minister said.
To achieve this goal, "we are talking about $18 to $20 billion that we need, which means an annual budget of $4 to $5 billion", she added.
"Our vision is to provide 100% coverage for water and hopefully 50% at least coverage for sanitation and sewage within the coming five to six years"
interim public works minister
At present her ministry has only received $200 million from the interim government's budget, and a further $300 million from donor countries and other external funds annually.
That is "10% of what we need as an investment," she said.
In Tokyo, Iraqi officials will also discuss ways to reduce the country's multi-billion dollar foreign debt burden.