Illegal music downloads outnumbered tracks sold by a factor of twenty to one last year, according to the International Federation of the Phonographic Industry (IFPI).

As the industry body announced that digital music sales rose by 40 per cent last year, it called on internet service providers to take action to counter illegal filesharing.

Record companies' revenue from digital sales reached $2.9billion (£1.48billion) but the growth is still failing to cover losses from the collapse of CD sales, according to the music industry trade body's annual report.

The IFPI said that CD sales fell 11percent between 2005 and 2006, and probably dropped further in 2007. Worryingly, digital music revenue is already showing signs of a slowdown. From $380million in 2004, digital revenue roughly tripled in 2005 and nearly doubled in 2006, but the increase slowed to 40 per cent last year.

The IFPI said that it welcomed President Sarkozy's proposal to clamp down on copyright violations. He called in November for internet service providers in France automatically to disconnect customers involved in piracy.

John Kennedy, the chairman of the IFPI, said that the plan is “the most significant milestone yet in the task of curbing piracy on the internet”.

He added: “There is only one acceptable moment for ISPs to start taking responsibility for protecting content, and that moment is now. The French decision shows an urgency of approach that is badly needed in every market where music is today being massively devalued by piracy.”

Digital downloads have grown in five years to account for 15 per cent of the world's music sales, with more than 500 legally licensed music sites selling about six million tracks of music.

Single track downloads, the most popular digital music format, grew by 53 per cent to 1.7 billion (including those on digital albums).

Japan is continuing to drive the digital market, the report said, particularly as a result of consumers using mobile phones to download music.

Utada Hikaru, a Japanese singer, sold more than seven million units in various digital formats of her single Flavor of Life, originally released as a ringtone.

However, young Japanese mobile internet users are also likely to be abusing pirated music, with a Recording Industry Association of Japan report showing that nearly two thirds frequently obtained illegal music through their phone.

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