The Government has stalled a proposed law to enforce copyright on the internet after a "web roots" protest that blacked out sites yesterday.
Prime Minister John Key conceded that Section 92a of the Copyright Act could be "problematic", and suggested it could be thrown out.
The clause would require internet service providers (ISPs) to disconnect users who download pirated material such as movies or songs.
The clause has been widely condemned as "unworkable" and allowing "guilt by accusation" because there would be no independent scrutiny of claims made by copyright holders against users.
Opponents say it could unfairly punish businesses or families when the downloading is done without their knowledge by an employee or family member or by someone hacking into their connection.
Supporters say these suggestions are scaremongering, and that the new law is aimed only at large-scale and repeat piracy.
Internet users have been "blacking out" their web presence in protest at Section 92a.
The protest culminated yesterday when most of New Zealand's major blogs took down their sites, replacing them with a black notice.
Section 92a was to have come into force this weekend, but Mr Key said it would be delayed a month while ISPs and copyright holders continued efforts to work out a voluntary agreement on how it would be enforced.
He said if they could not agree, the clause would be suspended.
If they did reach an agreement, it would be reviewed in six months.
"Our preference is for the parties to reach a compromise and the law to work properly. If it doesn't, we will change it," the PM said.
He had been unaware of the concerns over the clause until the blackout protest intensified last week.
Section 92 was removed by a parliamentary select committee last year, but was put back into the legislation by then-Labour Government minister Judith Tizard - with National's support.
But in Government, National has changed its position.
"We've had a chance to reflect on that," said Mr Key.
Protest organiser Bronwyn Holloway-Smith said more than 16,000 people had signed the protest.
She praised the Government for responding to the public outcry.
Ms Holloway-Smith said the Copyright Act was still flawed and did nothing to protect the rights of users.
"Section 92 is broken and it needs to be fixed."
The act puts the onus on ISPs to cut internet users' connections when they are notified of piracy by copyright-holders, but does not spell out a process for doing this.
The Telecommunications Carriers' Forum, representing large internet service providers such as Telecom, TelstraClear and Vodafone, said Section 92a was vague, ambiguous and not sustainable.
Forum chief executive Ralph Chivers said a delay was helpful, and an interim agreement was likely to be reached, but the Government would still have to be clear about a suitable process for disconnection.
Mr Chivers said an independent adjudicator, such as a senior barrister, could be used in the interim.
A long-term solution could be a government function such as a "copyright court" or making decisions subject to appeal to the Disputes Tribunal.
Recording Industry Association chief executive Campbell Smith said the organisation was happy to have an independent adjudicator, and a Government-funded one would be useful.
He said the creative industry was being badly hit by piracy; 19 of every 20 songs were being illegally downloaded.