A controversial internet copyright law will not be going ahead and will be replaced following a review by the Government, Prime Minister John Key confirmed today.

Section 92a of the new Copyright Amendment Act has upset the internet community, which says it could force the closure of websites following any accusation of breach of copyright, even if it was not proven.

The Government said last month it would delay implementation of Section 92a until March 27 to give the community time to come up with a workable code of practice.

It said if agreement could not be reached it would suspend the section.

One internet service provider (ISP) TelstraClear recently pulled out of the code of conduct that was being drafted and Cabinet decided today that it was time to go back to the drawing board.

"Section 92a is not going to come into force as originally written. We have now asked the minister of commerce to start work on a replacement section," Mr Key said.

"There is a need for legislation in this area, some progress was made between copyright holders and the ISPs but not enough to agree a code of conduct.

"In our view there are a number of issues that made it difficult to complete that code of conduct without fixing the fundamental flaws in section 92a."

Mr Key said there needed to be unanimous support amongst ISPs and Commerce Minister Simon Power would be engaging with some experts in the area to go back to the basics.

Mr Key has said previously both sides of the debate had a point.

The Government would not allow the internet to be the "wild west" where any copyright holders did not have entitlement to compensation or recognition of their work.

However, its interactive nature led to different issues from the traditional media, Mr Key said.