The government has amended the Digital Economy Bill to give High Court judges the power to block any website with a "substantial" amount of copyright infringing content, such as YouTube.
The House of Lords passed the amendment to the controversial Clause 17, which last year raised concerns as it allows the Secretary of State to adjust copyright law in a bid to keep up with technological advances.
At the time, the Department for Business, Innovation and Skills (BIS) defended Clause 17, saying it ensured the government could act if illegal downloaders develop new ways of obtaining material in the future.
Liberal Democrat Lord Clement-Jones said the amendment, which will "prevent access to specified online locations for the prevention of online copyright infringement", was designed to quash fears that web users accused of illegally downloading would be disconnected from the net under the 'three strikes' rule, which is also set-out in the Digital Economy Bill.
Instead, Lord Clement-Jones revealed Clause 17 would now offer a "more proportionate, specific and appropriate" way to deal with internet piracy.
"I believe this is going to send a powerful message to our creative industries that we value what they do, that we want to protect what they do, that we do not believe in censoring the internet but we are responding to genuine concerns," he said.
However, Jim Kilock, executive director of the Open Rights Group, slammed the amendment to Clause 17, saying it would "open the door to a massive imbalance of power in favour of large copyright holding companies".
"Individuals and small businesses would be open to massive 'copyright attacks' that could shut them down, just by the threat of action," Kilock said in a blog.
"This is exactly how libel law works today: suppressing free speech by the unwarranted threat of legal action. The expense and the threat are enough to create a 'chilling effect'."
Andrew Heaney from ISP TalkTalk has slammed the amendment, saying it will force ISPs to restrict access to the sites it decides are hosting copyright infringed material.
"Currently we do restrict access to a few sites but only in the most serious cases, for instance those involving child pornography or issues of national security. It's hard to see how copyright infringement warrants the same draconian response," said Heaney.
"More to the point, making the restriction of websites a more widespread policy would be dangerous given its major impact on internet users' human rights, freedom of expression and privacy. We fear it could also be a backdoor to censorship of the internet."
Heaney also said the ISP is concerned the amendment has been put through at the last minute without any proper debate or scrutiny.
"We are also worried that the amendment seems to require ISPs - and by implication their customers - to pay costs to rightsholders unless we bar a site prior to an injunction being granted against it," he said.
"This will inevitably encourage ISPs to bar access to a site immediately, in effect turning us into judges deciding which sites our customers can and cannot access."