Six of the biggest Internet providers have agreed a plan to tackle piracy within the music and film industries, pledging to send warning letters to users suspected of illegal file-sharing.
But the plan in its current form falls short of requests by music trade bodies which had called for Internet service providers to disconnect those who repeatedly download music illegally.
Under the plan drawn up by the government, Virgin Media, BSkyB, Carphone Warehouse, BT, Orange and Tiscali have agreed to work towards a "significant reduction" in the illegal sharing of content.
They will send letters to prolific illegal downloaders each week under a three-month trial, warning them that they are being monitored.
The ISPs and rights holders will then work together with the media regulator Ofcom to come up with a Code of Practice on how to act if this does not work.
Options could include a three-strikes-and-you're-out warning and filtering to prevent illegal tracks from being downloaded.
"This is an intelligent approach to tackling unlawful file-sharing by industry and ISPs," Business Secretary John Hutton said in a statement. "It tells consumers what they can do, rather than just what they can't."
The ISPs had previously argued they were mere conduits and not responsible for content. But they agreed to the deal after the British government said it would impose legislation if they did not work with the music and film industries to curb illegal file-sharing.
Music companies have been trying desperately to boost digital sales in recent years following the growth of Internet piracy which has cut into CD sales. Some 6 million Britons are thought to engage in illegal file-sharing each year.
The involvement of ISPs has also risen up the agenda after France introduced a scheme to disconnect users who persisted in illegal downloading.
The government said the signatories would also need to work together to make material legally available online in a wide range of user-friendly formats.
A host of downloading services have developed on the Internet in recent years, with the most successful being Apple's iTunes with over 70 percent of the digital music market. But the government has said it would still like to see more choice.
BSkyB announced a subscription music service just this week.
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