The program is being implented by Lilongwe Water Board, which will also manage upgrades and enhancements to the city’s water infrastructure in the next four years.
It will also increase water supply in low-income areas that have limited services and reduce water leakage.
The new investment programme will help in addressing the expected increased demand for water in the city with the population is growing by 4% per year.
Under the project, water storage capacity and supply will be increased by a further 30,000 cubic metres of water per day.
As per the plans, 100 water kiosks will be built in low-income areas apart from replacing the existing pipes and pumps that currently act as bottlenecks in the city water system.
The water supply networks will also be extended to areas of Lilongwe that are not currently linked.
EIB vice president Pim van Ballekom said: "Our new engagement in the country demonstrates the EIB’s continued commitment to supporting water investment that improves lives across Africa and around the world.
"Being able to see at first hand the impact of previous water investment supported by the EIB in Malawi shows the crucial need to continue to upgrade existing water infrastructure and expand the supply of drinking water to more communities."
Lilongwe Water Board chief executive officer Alfonso Chikuni said: "By increasing the supply of quality water we will secure the supply clean drinking water for 250,000 people by 2021.
"This will involve addressing critical issues concerning water quantity and quality, quality of service, efficiency, and continued capacity building of the local water practitioners."
