Mandelson is demanding that internet service providers be given new powers to suspend the accounts of web surfers who persistently download pirated music or films.
Parents risk £50,000 fines if their children are suspected of downloading illegal content under the proposed regulations.
Mandelson is under pressure to stem the tide of illegal downloading in the UK under targets set in the Digital Britain report -- due to be published next month -- calling for a 70% reduction of online piracy within a year.
Industry lobby efforts came in the form of David Geffen, who earlier this month, was seen dining with Mandelson while holidaying in Greece.
Geffen, an eminent figure in Hollywood and the music industry, has long been an outspoken critic of illegal file sharing.
A spokesman for Mandelson denied that he and Geffen discussed internet piracy or anything to do with the report during their meeting, and that the new regulations had been in development for "a matter of weeks".
Under the old recommendations, ISPs would be granted the power to "squeeze" the bandwidth of internet users who were downloading illegal content, in effect, slowing down internet speeds to make downloading large files an impossibility.
Mandelson is recommending that Ofcom and ISPs now keep records of computers being used to regularly download illegal material.
Persistent offenders would be tracked through their computer ID numbers and sent written warnings.
Those who fail to stop would have their internet blocked, with fines issued to the worst offenders.
It is estimated that one in 12 of the UK population illicitly download content, or about 7m people.
Tom Watson, the former minister for digital enhancement, spoke to the Daily Telegraph, slamming the draconian proposals: "Not only do the sanctions ultimately risk criminalising a large proportion of UK citizens, but they also attach an unbearable burden on an emerging technology that has the power to transform society, with no guarantees at the end that our artists and our culture will get any richer."