An alleged British internet pirate has struck a deal with United States authorities which could have implications for the Kim Dotcom case.

Student Richard O'Dwyer, 24, was facing extradition for copyright infringement after he created a website enabling people to watch free films and TV shows.

But the High Court at London heard this week that he had signed an agreement which will allow him to travel to the US and pay compensation. He had faced a jail sentence. The Times called the deal ground breaking.

A source close to Dotcom said his legal team was studying it closely as it showed US authorities could be softening their previously hard-line approach.

"It may well help us," the source said. "It certainly shows that within the US Government they are no longer following ‘a prosecute the copyright guys at all costs' approach."

Dotcom is challenging a US bid to extradite him on copyright infringement charges. He has volunteered to travel to fight the charges in a US court - if his assets are unfrozen so he can pay legal costs.

An extradition hearing is due to take place in March.

Mr O'Dwyer created the TVShack website and earned about $680,000 from advertising before US authorities closed it down.

His case was viewed as a "guinea pig" in a US crackdown on internet piracy.

The Times reported he would travel to America in the next fortnight to "pay a small sum in compensation and give undertakings not to infringe copyright laws again".

Meanwhile, it emerged yesterday that German-born Dotcom is now free to buy the $30 million "Dotcom mansion" - because court proceedings have forced him to stay in New Zealand.

His application to buy the property at Coatesville, north of Auckland, was turned down last year, because the Government said he did not pass a required "good character" test.

But because he has been a permanent resident since 2010 - with no periods of absence since September 26 last year, when he last entered the country - he no longer needs consent from the Overseas Investment Office.

His arrest on internet piracy charges has forced him to remain in New Zealand while he fights extradition to the US. He spent a short period in prison after the January 20 raid on his home.

It is understood that before his arrest he deliberately undertook to remain in the country so that he would be eligible to buy the property. However, it remains to be seen if he will make a fresh bid to buy the sprawling residence because his assets are frozen.

Land Information Minister Maurice Williamson, who has responsibility for the OIO, confirmed Dotcom was free to buy the house - if he had the cash.

- © Fairfax NZ News