The UK Health Security Agency (UKHSA) said that cryptosporidium was responsible for a surge in cases of the illness in the town of Brixham.
They said that cryptosporidium is “predominantly a waterborne disease” and infections can be caused by drinking contaminated water.
Around 70 people in Brixham have reported symptoms of diarrhoea and vomiting, prompting the investigation.
South West Water (SWW) advised customers to use their water as normal.
It said: “We have reviewed the operation of our water treatment works and the water quality data from those sites, which show us there have been no issues with the treated water.
“As agreed today with public health partners, we are carrying out further monitoring of the local supply area and we’ll continue working closely with them on their investigation."
Investigations into the source of the illness are ongoing, the UKHSA said.
Sarah Bird, consultant in health protection at UKHSA South West, said: “At this stage a source has not been identified, and more information will be shared as soon as it is available.
“For most people, cryptosporidium symptoms can be managed at home without needing medical advice.”
She added: “Anyone with a diarrhoeal illness should drink plenty of water to prevent dehydration and if they have severe symptoms like bloody diarrhoea, they should contact NHS 111 or their GP surgery.
"Please stay off school and work for 48 hours since the last episode of illness and away from swimming pools for 14 days after the last episode of illness.”
