Government plans to curb illegal filesharing received a significant boost on Wednesday, as a judicial review of the controversial Digital Economy Act failed to halt the legislation.

The UK's two largest internet service providers, BT and TalkTalk, were dealt a blow as their judicial review of the DEA was thrown out of London's high court on all but one of the legal grounds they had raised.

BT and TalkTalk argued the act infringed internet users' "basic rights and freedoms" and received insufficient parliamentary scrutiny.

Plans to send thousands of warning letters to alleged illegal downloaders should now go ahead in the first half of next year.

However, the ISPs immediately signalled they could appeal against the high court ruling. A spokesman for TalkTalk said: "We're disappointed that we were unsuccessful on most of the judicial review. On the question of the proportionality of the act, we're pleased the judge identified issues but disappointed that he felt that the evidence of the futility of the measures imposed by the act, and the cost and harm they will cause, is not sufficiently definitive enough at this stage to uphold our claim.

"We are reviewing this long and complex judgment and considering our options, which may include an appeal to the court of appeal, or a request that the court of appeal make a reference to European court of justice. Though we may have lost this particular battle, we will continue fighting to defend our customers' rights against this ill-judged legislation."

Under the act, rights holders will collect data about people believed to be illegally downloading film and music from filesharing sites. ISPs will then match the rights holders' data against their customer database and send warning letters to those accused.

Repeat copyright infringers could have their internet access slowed or even blocked under secondary measures in the act. However, this second phase is understood to be about 18 months away from being considered as part of the measures.

Rights holders, including music and film industry companies and the Premier League, assert that illegal filesharing is costing UK businesses £400m a year in lost sales.

The chief executive of the industry music trade body the BPI, Geoff Taylor, said: "This judgment gives the green light for action to tackle illegal downloading in the UK.

"It confirms that the DEA is proportionate and consistent with European law. Shareholders and customers of BT and TalkTalk might ask why so much time and money has been spent challenging the act to help reduce the illegal traffic on their networks.

"It is now time for BT and TalkTalk to work constructively with government and rights holders to implement the Digital Economy Act."

The high court judge, Mr Justic Parker, dismissed the ISPs' argument that the previous Labour government, which rushed through the DEA in the dying days of the last parliament in April 2010, should have notified the European Commission; that it makes ISPs liable in damages for copyright infringement on their network; that it breaches data protection laws; and that it is a disproportionate response to copyright infringement.

However, the ISPs' contention that the DEA is unlawful because it forces them to foot 25% of the bill of the "mass notification system" and its appeals process was upheld.

The ISPs will now no longer have to pay 25% of the costs of establishing an appeals body. But they will still have to foot 25% the cost of mass letter sending to internet users, with rights holders paying the remaining 75%.

Parker said: "From the point of view of both copyright owner and subscriber, the DEA represents a more efficient, focused and fair system than the current arrangements.

"Although it is difficult to predict the effect of measures such as those contemplated by the DEA, there are reasons for believing that such measures may well have a positive effect [on reducing illegal filesharing]."