The British Phonographic Institute, or BPI, said warnings would be posted on the Internet threatening court action against the pirates.
Research commissioned by the institute has shown that some 8 million people now download music from the Internet and 7.4 million — or 92 percent — admit doing so illegally.
As a result, consumers are expected to spend 32 percent less on albums and 59 percent less on singles than they did last year, the institute warned.
"There is no clearer evidence of the damage that illegal downloading is doing to British music and the British music industry," said BPI chairman Peter Jamieson.
"Illegal file-sharing is causing real financial damage to artists, to songwriters, to record companies, publishers, retailers and everyone involved in the business."
The institute said that in 2002 there were 184 million cases of piracy, while legitimate CD album sales totaled 222 million.
Britain's 1988 Copyright, Designs and Patents Act outlaws file-sharing, where Internet users share music with others.
The BPI said it is posting an instant messenger on the Internet that tells people to disable the file-sharing software on their computers, or face court action.
The aim of the campaign is to make users of file-sharing networks aware they are infringing copyright law, the institute said.
"There is no excuse whatsoever for people taking music without permission," said Jamieson.
"There are literally hundreds of thousands of tracks available on legal Internet music services in Britain, and the number of tracks available and the number of services providing them grows weekly."
The survey, jointly commissioned by the BPI and the British Video Association, was based on a sample of 3,667 people aged 12 to 74. No margin of error was given.
Britain's music industry is worth almost 5 billion pounds (US$9 billion) a year and employs around 126,000 people.