The proposals are part of a strategy on the creative industries
Internet service providers must take concrete steps to curb illegal downloads or face legal sanctions, the government has said.
The proposal is aimed at tackling the estimated 6m UK broadband users who download files illegally every year.
The culture secretary said consultation would begin in spring and legislation could be implemented "by April 2009".
Representatives of the recording industry, who blame piracy for a slump in sales, welcomed the proposals.
"ISPs are in a unique position to make a difference and in doing so to reverse a culture of creation-without-reward that has proved so damaging to the whole music community over the last few years," said John Kennedy, head of the International Federation of the Phonographic Industry (IFPI).
A spokesperson for the Internet Service Provider's Association (ISPA) said that creating appropriate legislation would be very difficult.
"Any scheme has got to be legal, workable and economically sustainable," the spokesperson told BBC News.
He also said that ISPs were already pursuing self-regulation, which was the government's preferred route.
"The government has no burning desire to legislate," Andy Burnham, culture secretary, told the Financial Times.
However, he said that the proposals signalled "a change of tone from the government".
Its intentions are outlined in a creative industries strategy paper called Creative Britain: New Talents for the New Economy.
The document is a broad ranging paper that sets out government support for the creative industries.
The document commits the government to consulting on anti-piracy legislation this spring "with a view to implementing it by April 2009", according to the FT.
"We're saying we'll consult on legislation, recognising there are practical questions and legitimate issues," Mr Burnham told the paper.
In particular, any legislation would have to take account of the 2002 E-Commerce Regulations that define net firms as "conduits" which are not responsible for the contents of the traffic flowing across their networks.
European laws on online privacy could also create problems for any new legislation.
Earlier this year it was reported that the government was considering a "three strikes" approach to tackling persistent offenders in the report.
But Mr Burnham denied this was the case and told the FT that the strategy had "never been in the paper".
If the government goes ahead, the UK would be one of the first countries to impose sanctions.
"This is a sea-change in attitude and I believe it is now up to governments elsewhere in Europe and further afield to follow their example," said Mr Kennedy.