The peer-to-peer network has also agreed to pay $100m (£53m) in damages to the record industry.

The announcement follows the release of a music industry report that says more than 20 billion music tracks have been downloaded illegally in the last year.

File sharing and music piracy are key factors in the recent decline in record sales, according to the music business.

“We have won another battle in an ongoing war,” said John Kennedy, chairman and CEO of the International Federation of the Phonographic Industries (IFPI). “We move forward with a spring in our step.”

Kazaa follows other sites like Napster which now offers legal downloads.

Mark Mulligan, an analyst with Jupiter Research said the amount of damages that Kazaa are willing to pay demonstrates how big the service had become.

“$100m is half of the legitimate music downloads market in Europe,” he said.

At its peak the site had more than four million simultaneous users. The Kazaa software has been downloaded 239 million times.

Legal fight

The decision by Kazaa follows a series of legal wrangles around the world. Last year an Australian court ruled that the file-swapping program encouraged users to breach copyright.

The Federal Court ordered Kazaa’s owners, Sharman Networks, to modify the software to prevent further piracy. In November it introduced a filtering system on 3,000 keywords to prevent users finding copyrighted material.

http://news.bbc.co.uk/2/hi/technology/5220406.stm