Prime Minister John Key announced yesterday Section 92a of the new Copyright Act would not be introduced and would be replaced after a review of its conditions.
Internet users campaigned against it, saying it could force the closure of websites following any accusation of breach of copyright, even if it was not proven.
Internet New Zealand said last night the announcement was a relief because Section 92a would have been a disproportionate response to copyright infringement.
"New Zealand has narrowly escaped being the global guinea pig for this approach and precedent-setter for its advocates," it said.
Mr Power said there had been too much uncertainty around Section 92a to put it in force.
He said it had been designed to combat unlawful file-sharing which facilitated copyright infringement on a large scale -- a problem that was emerging internationally and in New Zealand.
"This behaviour is very costly to New Zealand's creative industries and needs to be addressed," he said.
"While the Government remains intent on tackling this problem, the legislation itself needs to be re-examined and reworked to address concerns held by stakeholders and the Government."
