The BBC is to conduct a review of the licence-fee system amid concern that a surge in the number of people watching television online is undermining support for the way that the corporation is funded.

More than 700,000 viewers are downloading BBC programmes every day through the iPlayer service. Launched at the beginning of this year, it is expected to have one million daily users by Christmas – and can be watched without a licence fee.

A licence fee is required for people who “watch or record TV programmes as they are broadcast”, according to TV Licensing, the body that collects the money, but it does not apply to Doctor Who, EastEnders and other recently transmitted programmes available via the BBC website. The licence fee raises £3.4 billion.

The BBC is confident that few viewers will refuse to watch live television to avoid the licence fee, but viewing habits are changing rapidly. Many viewers know that it is possible to link a computer to their television, and watch programmes delivered over the internet on a larger screen.

Now Sir Michael Lyons, chairman of the BBC Trust, wants to consult the public on the £139.50 annual licence fee, which is paid by more than 25.3 million households.

A spokesman for TV Licensing said: “If you only watch the iPlayer, and watch or record no live programmes, you don’t need a television licence, although very few people are likely to do that.” That follows from a long-standing exemption that also applies to purchased DVDs and videos. The popularity of the iPlayer has grown quickly. Last Sunday more than 300,000 people watched the finale of Doctor Who online – a record audience for the service. Doctor Who, The Apprentice, EastEnders and Top Gear regularly top the most requested programmes. Channel 4, and to a lesser extent ITV, run similar services.

The review is intended to focus on the way that the compulsory levy is operated and collected, and it will include public consultation on its operation, probably in the autumn. It will also reconsider the balance of its carrot-and-stick approach to enforcement and the tone of its advertising, which has generated a rash of complaints.

The BBC Trust hopes to avoid policy debates “about whether there should be a licence fee” but the inquiry will have to review whether the existing law is effective. Last week Mark Thompson, the Director-General of the BBC, spelt out the limits of the current system when he told MPs on the Culture Select Committee that “if you watch live television through a mains-powered device, you have to pay a licence fee” and that “live [content] is the key point in the current definition”. Most content on the iPlayer has been transmitted previously, so the service is not classified as live. Opposition politicians said that the loophole demonstrated that the licence-fee system was not keeping up with changes in technology.

John Whittingdale, the Conservative MP who is chairman of the Culture Select Committee, said: “Technology is changing the nature of television and the way some of it is funded cannot be based on licensing a box in the corner of the room. In my view this is another reason why the licence fee cannot be sustained in the longer term.”

Don Foster, the Liberal Democrats’ culture spokesman, said: “It does look like the BBC have shot themselves in the foot a little by creating this licence-fee loophole with the iPlayer.”

However the BBC is confident that the loophole would not present a serious problem because of the popularity of live television, as shown by high audiences generated by sporting events, including the 13.1 million who watched the Wimbledon men’s final. It also believes that the licence-fee law could be changed if evasion became widespread.

About one in twenty households refuses to pay the levy, even though TV Licensing has long used aggressive advertising campaigns to scare the public into paying.

During May, viewers made 21.8 million requests to view on the iPlayer, whose success has been so great that internet providers have expressed concern that television traffic is clogging up the internet.

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