Peter Mandelson has called for a three-pronged approach to tackle unlawful peer-to-peer (P2P) file-sharing.
The Business Secretary said that new laws in isolation would not be enough to tackle the problem, which costs the creative industries millions of pounds each year.
He called on ISPs and the creative industries to work with Government to ensure a package is put in place which balances education, enforcement and new business models to discourage unlawful downloading.
Speaking at the C&binet creative industries conference, Mandelson confirmed proposals set out in the recent consultation on unlawful file-sharing would form the basis of measures in the Digital Economy Bill.
The Government expects that warning notifications, followed up with targeted legal action by rights holders, should be the only enforcement action required to significantly reduce the level of unlawful file-sharing. However, the Government would have reserve powers to issue an order requiring ISPs to invoke technical measures. Account suspension will be an option of last resort to deal with the most serious infringers.
Highlighting the scale of the problem, Mandelson said only one in every 20 tracks downloaded in the UK is downloaded lawfully.
"It's clear that whilst unlawful file-sharing excites a strong response from all sides, it is not a victimless act. It is a genuine threat to our creative industries.
"The creative sector has faced challenges to protected formats before. But the threat faced today from online infringement, particularly unlawful file-sharing, is of a different scale altogether. We cannot sit back and do nothing.
"We will put in place a fair, thorough process, involving clear warnings to people suspected of unlawful file-sharing, with technical measures such as account suspension only used as a very last resort.
"Only persistent rule breakers would be affected - and there would be an independent, clear and easy appeals process to ensure that the correct infringer is penalised."
He added that educating consumers on the value of intellectual property rights would help to bring about changes in behaviour - alongside innovation and new business models enabling consumers to download content at competitive prices.
"A 'legislate and enforce' approach to beating piracy can only ever be part of the solution. The best long-term solution has to be a market in which those who love music and film, for example, can find a deal that makes acting unlawfully an unnecessary risk."
In other areas, Mandelson said there was a case for copyright laws to be modernised to reflect reasonable consumer behaviour which did not damage the sustainability of the creative industries.