Persistent illegal file-sharers could face a fine of up to £50,000 as part of the government's Digital Economy Bill, outlined in the Queen's speech.
The bill introduces a raft of measures designed to reduce illegal file sharing that will be trialled before government considers cutting the internet connections of persistent offenders.
Ministers have insisted that cutting off users will be considered only as a last resort.
All internet service providers (ISPs) will first have to send out letters to those identified as illegal file-sharers.
Content owners will have to pay a fixed fee, set by Ofcom, to have that letter sent to the ISP's customer.
If that fails, the secretary of state will have to go to parliament before the ISPs could be forced to suspend users or take other technical measures.
That decision will be made only if the lesser measures fail to reduce unlawful file-sharing by at least 70%.
Stephen Timms, the minister for Digital Britain, said around 90% of the ISP market supports the policy and new business models are making file-sharing less attractive.
He confirmed that illegal file-sharing will not be made a criminal offence. Consequently, there will be no jail terms, only fines of up to £50,000.
"Better protecting our creative communities from the threat of online infringement will ensure existing and emerging talent is rewarded and will bring new choices for online consumers," said business secretary Peter Mandelson.