This is £2.4bn (8%) less than the £29.1bn Network Rail requested, and £1.4bn less than the track operator's current five-year budget which runs until March next year.
"Network Rail has delivered significant improvements to reliability, asset condition and efficiency over the last five years, against the backdrop of strong passenger and freight growth," said ORR chief executive Bill Emery.
"Our determination provides the funding necessary for Network Rail to build on this to deliver further improvements for train operators, passengers and freight customers and expand capacity for the long term benefit of the railway."
The improvements the ORR is asking Network Rail to deliver include:
Improvements in reliability and levels of disruption: a 20% reduction in late and cancelled trains; train punctuality increasing to at least 93% for local services in the south east and 92% for all other services; at least a 25% reduction in freight trains delays caused by Network Rail; reductions of over a third in disruption to passenger services caused by engineering work and no worsening of the current position for freight services
Improvements in safety: further reductions in the risk of death or injury to passengers and rail workers from accidents on the railway
Improvements in capacity: the largest improvement programme on the network for decades to accommodate 20% more passengers and for the expected 30% increase in freight services.
Network Rail will now consider the ORR's determination before deciding whether or not to appeal by February 2009.
Network Rail planning and regulation director Paul Plummer said: "Continued high levels of investment in our railway network are to be welcomed but we must be sure that these clearly challenging targets and levels of investment set out today by the ORR are both achievable and adequate to meet the growing demands being placed on our railway.
"We will now take away today's determination and carefully study and consider the implications it will have on both passengers and freight users and on the industry as a whole. We must satisfy ourselves that what is proposed can be delivered and that it will be enough to solve the issues of capacity and deliver the much needed investment we need to build a bigger, better railway."