Consumer groups warned the new law could punish the wrong people
French politicians have rejected a bill which proposed that people caught downloading music illegally three times should be cut off from the internet.
The legislation, backed by President Nicolas Sarkozy, would have set a tough global precedent in cracking down on internet piracy.
The music industry has been calling for stricter laws as revenues have fallen.
Ministers said an amended version of the bill would go before parliament in the next few weeks.
The new legislation would have operated under a "three strikes" system. A new state agency would first send illegal file-sharers a warning e-mail, then a letter, and finally cut off their connection for a year if they were caught a third time.
It was backed by both the film and record industries.
But some consumer groups had warned that the wrong people might be punished - should hackers hijack their computers' identity, and that the scheme amounted to state surveillance.
The socialist parliamentarian Patrick Bloche said the bill was "dangerous, useless, inefficient, and very risky for us citizens."
Although the legislation was approved by the Senate, France's upper house, it was defeated in a vote of the National Assembly.
Two members of Mr Sarkozy's majority government joined the socialist opposition in voting against the bill, in a protest to an amendment which would have made users who had been banned, continue to pay their internet bills.
The government can now re-introduce the legislation to parliament later this year.