Croston, which lies south of Preston, was hit by flooding at the weekend. About 50 homes remain without power.
The agency said the River Douglas south of the village had "overwhelmed" defences, causing a "gap".
Flood risk manager Andy Brown said they would be "coming up rapidly with an emergency plan" to carry out repairs.
Further updates about this and other flooding stories on the BBC live page
Electricity North West said about 500 homes in the village had lost power in the flooding, with 50 still waiting to be reconnected.
Incident manager Steve Cox said the "focus today is to ensure power is restored for the remaining customers".
South Ribble's Conservative MP Seema Kennedy said she would be asking the Government to "look again" at flood defence spending and "maybe reallocate resources in the Environment Agency and think about what we are doing, quite literally, upstream".
The Environment Agency have said flood defences across the UK need a "complete rethink" following the recent flooding.
A breach in river defences near a Lancashire village could see it suffer further flooding, the Environment Agency has warned.