Nipper has been the HMV symbol since 1898
The new service, which is scheduled to go live next year, will allow net surfers to search for, buy and download their purchases via the internet.
HMV, one of the biggest conventional record retailers in the UK, has already diversified into selling music by the internet, but by mail order.
The new service would see the chain enter the marketplace for digital music - and into competition with companies like Napster, Pressplay and MusicNet, all set to start offering digital music services in the near future.
HMV has said it believes the investment will pay off in the longer term.
HMV's e-commerce director Stuart Rowe said that the deal would help "kick start this market successfully".
"We believe there will be a real market for digital distribution in the future, which will compliment our existing high street offer, and now is the time to start putting the building blocks in place," he said.
'Revenues'
Tornado already supplies downloading technology to record companies EMI and V2, computer games publishers Rage and Eidos, and software companies Rage, Midas Interactive, EIDOS.
The company described the HMV move as an opportunity to "generate considerable revenues" and a sign that "the future of digital distribution is a reality".
Tornado has also said that the digital rights management (DRM) technology incorporated into the systems will ensure copyright security for content traded this way.
Record shops, like record companies, have recently been suffering from a downturn in the value of music sales - especially singles.
The HMV move is a sign of the continued fears in the record retailing business about the future influence of digital music trading - despite the failure, to date, of the new business model to live up to the hopes of a few year ago.