Lord Mandelson, the business secretary, ordered officials to draw up draconian regulations on internet piracy just days after he had a private dinner with a Hollywood mogul who is a critic of illegal file-sharing.

Mandelson is understood to have demanded that internet service providers be given new powers to cut off the accounts of British web users who persistently download music and films for nothing.

The business secretary’s intervention comes after a meeting last weekend with David Geffen, the billionaire producer who co-founded the DreamWorks studio with Steven Spielberg.

Mandelson and Geffen dined on August 7 with members of the Rothschild banking dynasty at the family’s holiday villa on the Greek island of Corfu.

Geffen, who also founded Asylum Records, the label which signed Bob Dylan and the Eagles, has criticised those who download music without payment. As early as 2001 Geffen warned about the way MP3 players were being used “to store unpaid-for material”.

David Davies, the Conservative MP, said last night: “It does seem a remarkable coincidence. Peter Mandelson should be forced to reveal the full extent of his meetings with wealthy friends on holiday and, in the name of openness, disclose exactly what they discussed.”

A spokesman for Lord Mandelson said last night that there had been no discussion of internet piracy during the Corfu dinner.

Nevertheless the new proposals will prove controversial with critics who warn that the clampdown would criminalise the estimated 6m British broad-band users who download songs and films from file-sharing sites.

Tom Watson, the former Cabinet Office minister, is believed to be planning a Labour campaign to prevent the proposed regulations from reaching the statute book.

British music industry leaders claim that piracy is costing them £180m a year. World-wide, the number of files downloaded illegally last year has been estimated at 40 billion.

The so-called Digital Britain bill, which among other things will regulate file sharing, is due to be published next month and be debated in parliament later in the year.

Until Mandelson’s edict, the most serious sanction being planned against internet pirates was “bandwidth squeezing” – a technical measure that cuts the capacity of a person’s internet connection to make it impossible for them to download film or music.

Under the regulations, someone suspected of large-scale piracy would first receive a series of warning letters. Industry experts believe that these might be enough to stop 70% of illegal downloads – the ones carried out by children without the knowledge of their parents.

However, failure to heed the initial warnings would be followed by the entire household having its internet service cut. The addresses of the hardcore pirates would be circulated to all internet service providers.

A Whitehall source said: “Until the past week Mandelson had shown little personal interest in the Digital Britain agenda. Suddenly Peter returned from holiday and effectively issued this edict that the regulation needs to be tougher.”

A spokesman for Mandelson refused to comment on the planned internet clampdown. “Work has been ongoing on these issues for a matter of weeks,” he said. “Lord Mandelson does not believe Digital Britain is even on David Geffen's radar. There was no discussion on this with Geffen.” According to a new YouGov poll for The Sunday Times, Gordon Brown was wrong to put Mandelson in charge of the country while he went on holiday last week. Two out of three voters – or 67% – criticise him for allowing an unelected peer to take the reins of power.

Opinion was mixed over the business secretary’s decision to accept a free holiday from the Rothschilds. Almost half – 44% of voters – think it was inappropriate, while 50% say Mandelson should be able to holiday where he pleases.