Internet users who choose to download music could pay a £30 annual charge, under new plans being formulated by the government.
Minister are understood to be backing the proposals, whereby large swathes of now-criminal internet users could have their activities legitimised, allowing them to download from the peer-to-peer sites they currently use without breaking the law.
John Hutton, business secretary, and Andy Burnham, culture secretary, will unveil proposals for a new deal between internet service providers and the music industry today, but the levy plan remains firmly in the government's long term sights, according to insiders.
Today's plans will involve six leading internet service providers sending letters to thousands of the most prolific downloaders warning them that their activity has been detected and is being closely monitored.
Over the past year, 6.5 million Britons are thought to have downloaded files illegally.
The cost of such activities is estimated to cost the music industry £1 billion over the next five years.
In an effort to tackle the problem, the six biggest providers - BT, Virgin Media, Orange, Tiscali, BSkyB and Carphone Warehouse - have all signed up to a government drive addressing unlawful file sharing.
Reports suggest that those caught downloading illegally and continuing to ignore warnings could be subject to 'online surveillance' as well as having their internet speeds reduced.
Fergal Sharkey, the former Undertones singer and chief executive of British Music Rights, said: "This is something of a step into the unknown for the internet providers, music industries and ministers.
"But we can't go on without it - no business can survive after losing as much revenue as the music industry has."
Liberal Democrat culture spokesman Don Foster said weclomed the move, but said more emphasis had to go into supporting legal downloads.
"We have to accept that there is no single solution to solving this problem," he said.
"The reality is that people who are determined to continue downloading music illegally will not be deterred by a threatening letter and will soon find ways to get round this system by masking their IP address."