The company pleaded guilty to three charges at Telford Magistrates Court in relation to its Acton Burnell Treatment works.
The incident, where millions of litres of raw sewage was allowed to enter the Row Brook from the treatment plant, took place between November 2014 and May 2016.
The issue was discovered by an Environment Agency worker who was walking her dogs and noticed "a strong unpleasant odour and saw a ditch full of raw sewage at Acton Burnell".
As a result, an Environment Agency officer inspected the site and found the brook was polluted for 250 metres downstream of the works.
The Environment Agency said the incident was caused by a "fat blockage at the works inlet".
On returning three days later to check that the sewage had been cleared, the officer saw a discharge of raw sewage was happening again.
A spokesman for the Environment Agency said: "A Severn Trent Water site operative told him that this was due to the expansion of the nearby Concord College and that the sewage works serving it was due to be upgraded.
"Sewage effluent normally discharges into storm tanks during very poor weather conditions, but in this case was found to have been incorrectly discharging via the works storm tanks during normal weather. This meant sewage was being discharged into the brook without being properly treated."
As a result of the pollution, Severn Trent Water set up a system of pumping the storm tanks at the works to sludge holding tanks, which would then be emptied and taken off site by road tanker.
The Environment Agency said this showed it was possible to run the site in accordance with their permit despite capacity issues.
A survey by the Environment Agency carried out the following day concluded that sewage in the brook had a significant impact on macroinvertebrate ecology.
On inspecting the flow data to the works, the Environment Agency said it discovered that discharges of raw sewage had been happening regularly for 17 months, calculating that during the period Severn Trent Water had illegally discharged more than 3.8 million litres of raw sewage to the brook.
Environment Agency officer, Adam Shipp, said: "Severn Trent Water Limited had been aware of the capacity issues at the works since 2011 yet had taken inadequate steps to address them. When the incidents happened in May 2016 they were able to put in place simple measures that stopped raw sewage entering the brook. Putting the measures in place in 2011 would have protected the environment and kept them out of court."
He added: "Water companies are aware that their activities have the potential for serious environmental impacts, and they know that we will take appropriate action when they cause pollution."
A Severn Trent spokesman said: “We’re really sorry for the issues at Acton Burnell, and can’t apologise enough for the failings on our part.
“The problems were caused because the capacity of our treatment works wasn’t high enough to deal with the flows of waste water, something we had recognised as we were in the process of building a new facility but the precautions we’d put in place in the meantime simply weren’t enough.
“We know it wasn’t good enough, and the new plant means these problems shouldn’t occur in the future.”
The company pleaded guilty to 'causing sewage to discharge into the Row Brook from the Acton Burnell Treatment Works between November 2014 and May 2016', 'failing to provide a labelled sampling point', and 'failing to operate and maintain a grass plot treatment facility'.
Severn Trent was fined a total of £800,000 – £400,000 on the first and last charge and no separate penalty on the second.
It was also ordered to pay costs of £70,420.28 and a victim surcharge of £120.