Bristol Water said cryptosporidium was found at Clevedon works, which was taken out of operation on Thursday.
Around 7,000 properties in the BS21 and BS49 are affected and some schools have been closed.
The company said it was supplying bottled water to vulnerable customers.
Schools in Clevedon which are closed on Friday as a precaution are: Clevedon School St John the Evangelist School Mary Elton Primary School Bristol Water said notices were also being delivered by hand to affected residential properties.
Automatic compensation Bristol Water said the boil advice was likely to remain in place until further notice.
Compensation of £10 will automatically be paid to affected customers, the company said in a statement.
Thara Raj, a health protection consultant for Public Health England South West, said: "The level of cryptosporidium detected in the water supply is low and the advice to boil the water is a precaution.
"If people feel unwell or experience symptoms of diarrhoea and vomiting they should contact NHS 111.
If your symptoms become severe, you should contact your GP."
What is cryptosporidium?