A controversial law that could have forced firms to disconnect internet users accused of illegally downloading music or films has been withdrawn by the New Zealand government.

The Copyright Amendment Act would have put the onus on internet service providers to ban users accused of copyright breaches, even if such allegations were unproven.

"Section 92a is not going to come into force as originally written. We have now asked the minister of commerce to start work on a replacement section," Prime Minister John Key said.

The attempts by the New Zealand government to deal with what Mr Key has called the "Wild West" of the internet are being closely monitored around the world as countries struggle with legislation to combat digital piracy.

The music industry estimates that 95 per cent of all music tracks are downloaded illegally, causing $12.5 billion (£8.7 billion) of losses a year.

In the UK the Government has signed a memorandum of understanding with the entertainment industry saying it wants to cut piracy drastically within three years. Lord Carter of Barnes’s proposals in his Digital Britain report in January required ISPs to collect and pass on information on the worst digital pirates so that rights holders such as music publishers could take court action against individuals.

New Zealand's new anti-copyright theft law had been due to come into effect in late February but was postponed for a month following widespread protests from internet users.

The delay was intended to give Internet service providers time to come up with a code of conduct to make the law workable.

"There is a need for legislation in this area. Some progress was made between copyright holders and the ISPs but not enough to agree a code of conduct," Mr Key said.

"In our view there are a number of issues that made it difficult to complete that code of conduct without fixing the fundamental flaws in section 92a." The government will re-introduce a new law following a review.

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