Around 7m Brits are using a file-sharing network once a week to illegally download music files, says the Strategic Advisory Board for Intellectual Property (SABIP).
The board estimated that these downloads are costing the economy £12bn (US$19.4 billion) a year but said many of the downloaders were unsure that their actions were actually illegal.
"This report gives us some baseline evidence from which we can develop a clear research strategy to support policy development in this fast moving area," said Dame Lynne Brindley, a member of the SABIP.
The SABIP's report also recommended that consumers should be educated rather than prosecuted.
"We can't expect 12-year-olds to become copyright lawyers before they can switch on a computer, but we can educate people on enforcement and work towards getting the right people caught and punished - wherever they live," said the report.
Whether these recommendations will appear in the Digital Britain report, which is expected to be published on June 16, will remain to be seen. The report will layout strategies for a number of issues surrounding digital entertainment such as 2Mbps broadband for all, as well as tackling illegal downloaders.