The music industry is to sue Yahoo China for allegedly providing links to pirated tracks.
Pirate copies of Madonna tracks are easily found on Yahoo China
"We've started the process and as far as we're concerned we're on a track to litigation," John Kennedy, chairman of the IFPI, told Bloomberg.com.
Yahoo China is the second largest search engine in the country, and is 40% owned by Yahoo Inc.
Mr Kennedy told Bloomberg he hoped that negotiation could still prevent legal proceedings from starting.
Last year the International Federation of the Phonographic Industries, whose members include EMI, Sony BMG and Warner Music, sued Baidu, the most popular search engine in China and the dispute is ongoing.
Mr Kennedy declined to say how much in damages the music industry was seeking, if its claim proved successful.
With similar cases in the US damages "would certainly run into tens of millions and perhaps even more than that,'' he said.
The IFPI has made the Chinese market a priority for future music sales.
In a speech to the China International Forum on the Audio Visual Industry last month Mr Kennedy said China was "the most exciting new market in the world for the international recording industry".
In terms of music sales China is the 20th ranked music market in the world and the fifth in Asia, behind Japan, Korea, India and Taiwan.
Mr Kennedy warned that the country had to counter a "culture of music piracy" if it were to realise its commercial potential.
Illegal sales of music in China are valued by the IFPI at about $400m (£216m), with about 90% of all recordings being illegal.
A simple search on Yahoo China found mp3 files of recent releases for direct download within a few clicks.
A spokesman for Yahoo China, Porter Erisman, said the search engine was acting "within the law."
"We respect intellectual property rights," he said. "If someone sees something on our site that violates intellectual property rights, there is a process for removing it."
Mr Erisman said the company is talking with music companies about creating a licensed music download system for China.