The ORR issued the warning yesterday in response to last quarter's public performance measure (PPM) figures, which showed that only 83% of trains using the Western line arrive on time, compared with the national average of 91%.
ORR's director of access planning and performance, Michael Lee, commented: "Now is the time for some committed and cooperative work by all concerned, with the aim of shifting performance levels closer to those already enjoyed by passengers and freight customers on most other parts of the network."
He continued: "Everyone agrees that the performance of services on Network Rail's Western Route has been poor for far too long. The cycle where performance takes a step forward only to take another step back is not delivering the necessary improvements."
Network Rail and First Great Western, the route operator, have now developed a joint performance improvement plan for the route running between London, the Thames Valley, the west of England and south Wales.
The plan was submitted to ORR earlier this month by the Department for Transport, Transport Wales, and representatives of passengers using the line, in the hope of bringing the Western route's performance in step with national performance standards.
"If targets for this route are not met in the near future, then the consequences for Network Rail could be severe," added Lee.
"I do not propose, at this stage, to look into whether Network Rail is in breach of its licence - but all parties should be clear that this is an option that may be open in the future."