A High Court judge has ruled that BT must block access to a website which provides links to pirated movies.
Newzbin 2 is a members-only site which aggregates a large amount of the illegally copied material found on Usenet discussion forums.
The landmark case is the first time that an ISP has been ordered to block access to such a site.
It paves the way for other sites to be blocked as part of a major crackdown on piracy.
In his ruling, Mr Justice Arnold stated: "In my judgment it follows that BT has actual knowledge of other persons using its service to infringe copyright: it knows that the users and operators of Newzbin 2 infringe copyright on a large scale, and in particular infringe the copyrights of the studios in large numbers of their films and television programmes."
He continued: "It knows that the users of Newzbin 2 include BT subscribers, and it knows those users use its service to receive infringing copies of copyright works made available to them by Newzbin 2."
BT and the Motion Picture Association (MPA), which brought the case, will be back in court in October to work out how the blocking will work. BT said it will not appeal the ruling.
The MPA which represents a number of movie studios including Warner, Disney and Fox, launched the legal action as a last-ditch attempt to close down Newzbin 2.
Chris Marcich, president and managing director of MPA Europe said: "This ruling from Justice Arnold is a victory for millions of people working in the UK creative industries and demonstrates that the law of the land must apply online.
"This court action was never an attack on ISPs but we do need their co-operation to deal with the Newzbin site which continually tries to evade the law and judicial sanction. Newzbin is a notorious pirate website which makes hundreds of thousands of copyrighted products available without permission and with no regard for the law."
The MPA signalled its intention to pursue other ISPs.
BT describes the judgement as "helpful".
"It clearly shows that rights holders need to prove their claims and convince a judge to make a court order. BT has consistently said that rights holders need to take this route. We will return to court after the summer to explain what kind of order we believe is appropriate," the firm said in a statement.
Link sites such as Newzbin 2 are gaining popularity as those determined to get their hands on free content move away from traditional peer-to-peer downloading methods.
A previous court case had ruled that Newzbin 2's predecessor must stop linking to free content but a new version of the site was set up outside of the UK's jurisdiction.
Justice Arnold ruled that BT must use its blocking technology CleanFeed - which is currently used to prevent access to websites featuring child sexual abuse - to block Newzbin 2.
In an email interview before the verdict, Newzbin 2 threatened to break BT's filters.
"We would be appalled if any group were to try to sabotage this technology as it helps to protect the innocent from highly offensive and illegal content," said a spokesman for BT.
The Internet Service Providers' Association has been a fierce critic of web blocking.
It said that using blocking technology designed to protect the public from images of child abuse, was inappropriate.
"Currently CleanFeed is dealing with a small, rural road in Scotland," ISPA council member James Blessing told BBC Radio 4's PM programme.
"Trying to put Newzbin and other sites into the same blocking technology would be a bit like shutting down the M1. It is not designed to do that."
Digital rights organisation the Open Rights Group said the result could set a "dangerous" precedent.
"Website blocking is pointless and dangerous. These judgements won't work to stop infringement or boost creative industries.
"And there are serious risks of legitimate content being blocked and service slowdown. If the goal is boosting creators' ability to make money from their work then we need to abandon these technologically naive measures, focus on genuine market reforms, and satisfy unmet consumer demand," said ORG campaigner Peter Bradwell.
He said more scrutiny needed to be paid to the content of such sites.
"What will qualify a site to be worthy of blocking? Who makes the decisions about what people people are allowed to see online?" he asked.
The crackdown on piracy has gained new urgency in recent months.
Pressure from rightsholders forced new legislation on the issue.
The UK's controversial Digital Economy Act makes provisions for tough action against those who downloading pirated music and films - initially sanctioning a letter-writing campaign asking them to desist.
BT and TalkTalk called for a judicial review of the DEA, saying the legislation was rushed through Parliament and was unenforceable but a judge ruled that it could go ahead.
Court action could be taken against individuals who ignore written warnings and 'technical measures' including disconnecting someone from the web could also follow.
The government is also considering the feasibility of more widespread site blocking, including looking at the possibility of a voluntary scheme between ISPs and rightsholders.
The Newzbin case was brought under the Copyright, Designs and Patents Act.