File-sharing service Kazaa has agreed to pay record labels a $100 million settlement for allowing tracks to be illegally swapped through its service.

Kazaa owner Sharman Networks will pay the money to the world's four major labels. It's unclear if independent labels – who account for a growing 20 per cent of global music sales – will see a slice of the settlement.

Kazaa will also introduce filtering technologies ensuring that its users can no longer distribute copyright-infringing files.

John Kennedy, chairman and CEO of the International Federation of the Phonographic Industry (IFPI) said: "Kazaa was an international engine of copyright theft, which damaged the whole music sector and hampered our industry's efforts to grow a legitimate digital business. It has paid a heavy price for its past activities. At the same time Kazaa will now be making a transition to a legal model and converting a powerful distribution technology to legitimate use.

"This is the best possible outcome for the music industry and consumers. Our industry will have a new business partner and consumers will experience new ways of enjoying music online, with more choice. This is a win-win scenario."

EMI Music vice chairman David Munns said: "After investing the significant time and resources required in this truly global effort, we are very pleased to have reached this settlement. This is a victory for anyone in a creative industry that has had their works stolen and distributed through an illegitimate peer-to-peer network. While the award may seem like a vast pot of money, it will merely offset the millions we have invested – and will continue to invest – in fighting illegal pirate operations around the world and protecting the works that our artists create."

Munns called the settlement "a big step forward in the development of a vibrant, legitimate digital music marketplace."

The settlement follows a landmark ruling in the Federal Court of Australia last year which found the Kazaa operators guilty of authorising widespread copyright infringement.

Kazaa is one of the world's most popular peer-to-peer networks. At its peak it had 4.2 million simultaneous users worldwide.