Virgin Media has denied reports that it has reached an agreement with the UK recording industry to run a pilot scheme to deter illegal file sharing.

The internet service provider (ISP) agreed that it had discussed a 'three strikes and you’re out' policy with the music industry trade association, the British Phonographic Industry (BPI).

Under this scheme people who habitually downloaded copyrighted music from file-sharing sites would be given two warnings by their ISP before having their broadband service disconnected.

However, Virgin Media said it felt that this measure was too draconian, raised privacy and legal issues and would also be too costly for ISPs to run.

A representative for Virgin Media said: “There is no pilot in place. There are no details to confirm as we haven’t come to any sort of agreement with the BPI.

“The BPI wants the Government and ISPs to adopt the three-strikes system, we don’t want to go down to that level as it raises questions about privacy and funding.”

The prospect of introducing such a system was raised earlier this year when the Government said ISPs must take concrete steps to curb illegal downloads or face legal sanctions.

Andy Burnham, the culture secretary, said a consultation on how this would proceed would begin in the spring and legislation "could be implemented by April 2009".

Although at the time Mr Burnham denied a three-strikes policy was being considered, last week the Daily Telegraph reported that Virgin and the BPI were working on a pilot scheme that would disconnect customers who were found to be downloading music illegally.

It said the trial, which would go live within months, would see the BPI’s teams of technicians trace illegal music downloading to individual accounts and hand account numbers over to Virgin Media.

When the BPI was asked about the report it said it was unable to talk about individual ISP discussions.

“We can’t talk about the pilot and can’t give out details but we have outlined plans with Virgin and do have a dialogue with them. But there is no confirmation of a pilot.”