Ministers say copyright laws must keep pace with technology
Ministers have given a concession over what critics claimed were "draconian" powers which would enable them to crack down on online copyright infringement.
A clause in the Digital Economy Bill would have allowed ministers to amend existing laws on online piracy without the need for further legislation.
Google and Facebook were among firms to complain about the measure, saying it would hamper digital innovation.
Officials said they were "refining" the proposals after heeding concerns.
Critics said the proposed powers were disproportionate and would damage one of the UK's fast-growing industries.
Section 17 of the bill, which has attracted the most anger, would give ministers "reserve powers" to draft fresh laws to tackle net-based copyright infringement without needing parliamentary approval.
Ministers argued that such powers were needed to support copyright laws against future, more technically advanced forms of piracy.
But Conservative and Lib Dem peers had both threatened to vote against the measure when it is considered next in the House of Lords.
In response, the government has tabled several amendments.
These would mean existing copyright laws could only be amended by statute if there was a "significant" new threat of infringement and would provide for more parliamentary scrutiny before this happened.
The Department for Business said it was not "backing away" from the controversial clause and its core objectives but had listened to concerns about how it was being targeted.
"The Government remains squarely behind the aims of clause 17," a spokesman said.
"We have tabled a series of amendments which aim to clarify the breadth and scope of the clause and further reinforce the transparency of the process and the scrutiny of Parliament."
Separate proposals in the bill to disconnect so-called peer to peer file-sharers continue to cause concern among internet campaigners.
More than 30,000 people have signed a petition on the No 10 website saying the measure would penalise innocent people, arguing that persistent pirates would simply hack into other people's accounts.
Ministers insist people would only have their net connections slowed down or suspended as a last resort and not before their cases were first considered by a tribunal.
The Internet Service Providers Association (ISPA) has accused the government of focusing unduly on enforcement rather than making it easier for people to download content legally.