Up to 3 million British households will be in fuel poverty in 2016, a government-commissioned report forecast on Thursday, showing that UK's goal of eradicating fuel poverty by then could be at risk.

Professor John Hills at the London School of Economics calculated that 2.6 million to 3 million households will be fuel poor in four years' time, meaning the money they have left after paying energy bills will leave them below the official poverty line.

Britain has a legally binding target to eradicate fuel poverty as far as reasonably practicable by 2016, but the report forecast that the number of fuel poor households could rise from the current 2.7 million.

Hills said the government's definition of fuel poverty - households which spend more than 10 percent of their income on energy bills - is flawed because it does not accurately reflect the extent and depth of the issue.

Hills called for the government to use a new, more detailed indicator called Low Income High Costs (LIHC).

When one focuses on the core of the problem in the way I propose, the outlook is profoundly disappointing, with the scale of the problem heading to be nearly three times higher in 2016 (...) than in 2003, he said.

Following the publication of the report, Energy and Climate Change Secretary Edward Davey said he would adopt a new definition to measure fuel poverty by the end of the year and publish a consultation on the new approach this summer.

The evidence is overwhelming that improving the way we measure fuel poverty is integral to delivering the right policy outcomes, he said in a written ministerial statement on Thursday.

The extra amount of money that fuel-poor households have to pay on energy bills compared with higher income households will rise to 1.7 billion pounds in 2016, more than 50 percent above what was paid in 2009, Hills said.

This means fuel-poor households will have to pay on average 600 pounds more per year than better-off households.

Poor households face additional costs because they typically are unable to benefit from paying by direct debit and other methods that trim bills.

The report also showed that 75 percent of low-income households lived in buildings rated at a poor energy-efficiency level (E, F or G), meaning these households have to spend more money on keeping warm.

Hills recommended the government set out a strategy to tackle fuel poverty, saying improving energy efficiency in low-income households would be the most effective measure to reduce fuel poverty.

Britain's Fuel Poverty Advisory Group also urged the government to act.

The Government must grasp the nettle and use carbon tax revenues to increase the help available for the households hit hardest by rising energy bills, said Derek Lickorish, the group's chairman.

(Reporting by Karolin Schaps; editing by Jason Neely and Jane Baird)