The culture secretary said consultation would begin in spring and legislation could be implemented "by April 2009".
Representatives of the recording industry, who blame piracy for a slump in sales, welcomed the proposals.
"ISPs are in a unique position to make a difference and in doing so to reverse a culture of creation-without-reward that has proved so damaging to the whole music community over the last few years," said John Kennedy, head of the International Federation of the Phonographic Industry (IFPI).
I used to think the Brits were a bit smarter. Since the record business is global, the business model is just as broken abroad as it is here in the US.