BT AND TalkTalk have lost a landmark legal case attempting to halt the Digital Economy Act.
A judge dismissed their arguments on all but one of the legal points they had made.
The decision could lead to thousands of internet users suspected of copyright infringement being bombarded with warning letters and even having their connections severed.
Representatives of the music industry welcomed the ruling, which they say will help protect their sliding revenues.
A BT spokesman said: “We are disappointed with the outcome of the judicial review. We are reviewing this long and complex judgement. Protecting our customers is our number one priority and we will consider our options once we have fully understood the implications for our customers and businesses.
“This was always about seeking clarity on certain points of law and we have to consider whether this judgment achieves these aims.”
A TalkTalk spokesman said the firms are “disappointed” but also said the firm will appeal against the decision.
BT and TalkTalk mounted a legal challenge against the act after it was passed during “wash-up” – the period between one parliament being dissolved and another being formed. It was passed last April by 189 votes to 47 after a two hour debate despite public outcry over its possible implications.
Lawyers for BT and TalkTalk said they are particularly concerned about a clause that could force internet service providers to suspend accounts of users suspected of repeatedly infringing copyright.
They argued it could affect innocent internet users and will pass unfair administration costs on to them. Another point of contention is that the onus is on internet users to prove their innocence if they are suspected of copyright infringement. The government says the costs will be split between copyright holders, who will pay 75 per cent, and ISPs.