Plans to block websites that host copyright infringing material are to be dumped by the government.
Business secretary Vince Cable announced the change following a review of the policy by telecoms regulator Ofcom.
Website blocking was one of the key provision contained in the Digital Economy Act.
Internet Service Providers had objected to the idea that copyright owners could compel them to cut off some sites.
In the past week, the Motion Picture Association - a group representing film studios - successfully applied for a court injunction requiring BT to block access to an infringing website called Newzbin2.
The action was taken without using the Digital Economy Act, prompting some observers to question the need for the legislation.
Speaking to the BBC, Vince Cable appeared to suggest that the Newzbin2 case had opened up other legal avenues.
"We've discovered that the drafting of the original laws, which took place a year or so ago, were not tight.
"There are test cases being fought in the courts, so we're looking at other ways of achieving the same objective, the blocking objective to protect intellectual property in those cases, but in a way that's legally sound."
The government's decision to drop the DEA's blocking provision was criticised by UK Music, the body which represents musicians and record labels in the UK.
Its chief executive, Fergal Sharkey said: "Who wants to tell the 80% of music businesses that employ fewer than five people, and the thousands of artists who self-finance the production of their own albums, that to enjoy the protection of the law, all they need now is to have millions of pounds and spend years in court to protect their work."
Mr Cable also announced a raft of measures intended to update the UK's copyright laws.
The changes are based on the Hargreaves Review which was set up to examine current legislation's fitness for purpose in the digital age.
One of the most significant recommendations that the government plans to implement is the legalisation of "format shifting" - where users rip content from CDs or DVDs for their own personal use.
"We are talking about big changes," said Mr Cable.
"Bringing the laws more up-to-date to have a proper balance which allows consumers and businesses to operate more freely, but at the same time protect genuinely creative artists and penalise pirates."
The business secretary said the economy would benefit by £8bn over the next few years by updating the legislation.
'Not very good law'
Millions of people regularly convert movies on DVDs and music on CDs into a format that they can move around more easily, although most do not realise that it is technically illegal.
"The review pointed out that if you have a situation where 90% of your population is doing something, then it's not really a very good law," said Simon Levine, head of the intellectual property and technology group at DLA Piper.
Legalising non-commercial copying for private use would bring the UK into line with many other nations and also meet the "reasonable expectations" of consumers, said the government.
The change would not make it legal to make copies and then share them online.
The legal anomaly preventing personal "ripping" was one of many identified by Professor Ian Hargreaves in the review as stifling innovation.
One technology caught out by the law was the Brennan JB7 music player that lets owners copy their CDs onto a hard drive that can be accessed from around their home.
The Advertising Standards Authority demanded that Brennan advise customers that using the JB7 breaks the law.
Some legal experts believe that the acceptance of format shifting, combined with relaxations on manipulating works for the purpose of parody, paved the way for creative people to use content in different ways.
Susan Hall, a media specialist at law firm Cobbetts LLP, said the changes would give many artists "room to breathe" and remove the nervousness they might feel when using another work as inspiration.
One example that would be tolerated under the new regime is the Welsh rap song Newport State of Mind which was based on Jay Z and Alicia Keys' song Empire State of Mind.
Despite winning many fans on YouTube, the track was removed following a copyright claim by EMI. It is still available on other websites.
"There are all sorts of things that are genuine artistic works which are nevertheless based on parody, caricature and pastiche," said Ms Hall.
Updated laws on copyright could have a profound effect on the popular culture that can be created, albeit one that was hard to measure, she added.
One example is that of Doctor Who writers Russell T Davies and Steven Moffat who wrote fan fiction about the time lord earlier in their careers.
Such creative synergies could become more common in a more tolerant copyright climate, suggested Ms Hall.
"Rights holders are often very nervous about things like this but when you come down to it, it's the people that buy everything who also go to the trouble of writing and creating more," she said.
"It's about riffing off, not passing off."