By Phil ScullionFollow @PhilScullion
Vince Cable today ditched plans to block websites which host copyright-infringing material.
The business secretary called the switch an example of the "big changes" which are bringing the law "up to date".
He estimated that the change in legislation would benefit the economy to the tune of £8 billion over the next few years.
The shift is based upon the conclusions of the Hargreaves Review by telecoms regulator Ofcom, which considered whether current legislation is fit for purpose in the digital age.
Website blocking had been a key provision in the Digital Economy Act, but internet service providers had rallied against its limiting nature.
The Act's relevance has also been called into question following a recent successful application for a court injunction by the Motion Picture Association, a group representing film studios, forcing BT to block access to a website called Newzbin2, which did not make use of the Act.
Guy Wilmot, solicitor at Russell-Cooke LLP, labelled copyright legislation in the UK "very restrictive".
He added: "Many households in the UK are likely to be in breach of the Copyright, Designs and Patents Act 1988 by making back-up copies of music, films and software."
However these copyright breaches are rarely, if ever, enforced.
Speaking to the BBC Mr Cable said that there was a lack of "common sense" around copyright laws.
The fact that an owner transferring a CD onto a computer hard drive is technically illegal, but also almost universally flouted, for example.
Mr Cable said the UK would step away from "old fashioned restrictions" by legalising this practise.
He added: "We've got to bring the law into line with reality, and for people who are launching businesses they need clarity and there are now enormous numbers of businesses springing up and operating in this new digital world and they need to understand the way in which copyright law operates.
"Equally people who are in the creative industries need to know that they do have rights and if there are pirates around trying to steal them in an organised criminal way that the law will crack down hard on them."
Ivan Lewis, Labour's shadow culture, media and sport secretary, welcomed the government's announcement as a "step forward".
However he also said: "The government's decision not to proceed with site blocking regulations in the Digital Economy Act leaves considerable uncertainty about the future.
"The Newzbin ruling was a victory for the UK's creative industries and demonstrates that the law of the land must apply online, but the government is now under pressure to show leadership and ensure there are effective and efficient measures put in place to stop sites from infringing copyright."
Feargal Sharkey, chief executive of UK Music, which represents UK musicians and record labels, criticised the change to the law.
He said that protecting intellectual property is "vital" to the country's economic future, and described the music industry as a "recognised driver" of economic growth.
"Who wants to tell the 80% of music businesses that employ fewer than five people, and the thousands of artists who self-finance the production of their own albums, that to enjoy the protection of the law, all they need now is to have millions of pounds and spend years in court to protect their work?" he added.
Don Foster, Liberal Democrat media and culture committee co-chair, defended the changes, saying they would help "further develop" the UK as a world leader in the creative industries.