The aim of this study is to develop a quantified water loss Index to evaluate and manage leakage scientifically for the reduction of non-revenue water in water distribution systems. For the purpose, unavoidable background leakage suggested from UK water industry and IWA, and allowable water leakage in accord with the concept of allowable water loss are proposed by analyzing the inflow into two study water districts and the short-term water use of each customer in the districts. The study distribution areas are selected among the metered districts with good maintenance of leakage after improvement activities in Nonsan, medium sized city in Korea. Estimation models of allowable leakage are developed by metering and analyzing the minimum night flow at residential and commercial areas in the city. In the results of the investigation, it is estimated that background night flow in residential area was larger than that of commercial area where the types of business shows small water use characteristics. Meanwhile, night flow and background water loss on internal plumbing systems show great differences for each district which is influenced much by the water use characteristics and facilities scale. Based on metering water use data in various districts, leakage management criteria can be established under the consideration of domestic conditions in Korea by analyzing separated real water use and background leakage and it is possible to apply into presentation of optimal leakage level and reasonable time for working activities for leakage reduction.