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Vadim Mamotin, director general of Mediaservices, which runs the Russian digital music service, said that in addition to contributing to the state coffers, it also pays 15 per cent of every sale to the Russian Multimedia and Internet Society, a rights collecting agency. The site charges around £1 for a full-length album, compared to the £7.99 that licensed sites in the UK charge.

'The company has been unfairly characterised as a pirate website,' Vadim Mamotin said. 'Nothing could be further from the truth.'

The international music industry argues that the Russian Multimedia and Internet Society has no right to license music to Mediaservices and pays not a penny to artists and other rights holders.

Mamotin said that that the society had 'offered to pay the record companies the royalties they collected but been rebuffed'.

He declined to say how much money Mediaservices has made from music sales, nor the amount of royalties

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it has paid.

In an earlier statement, Mediaservices accused the big four record companies of targeting Allofmp3 in order to increase their leverage in the rights market.

'Universal, WarnerMusic, SonyBMG and EMI have repeatedly mischaracterised the company as part of a campaign to secure a more favourable royalty structure. Those companies and their agents, the British Phonographic Industry (BPI) and Recording Industry Association of America (RIAA) have enlisted the British and US governments as part of their business campaign,' the statement said.

Mediaservices said that its business model encourages consumers to buy more music.

'The company believes that everyone wins - record labels, artists and distribution companies - when the market is broader and deeper,' the statement said. 'Relying on a handful of artists for the majority of sales is an outdated business model and recipe for disaster for the music industry.'

Mamotin said that Mediaservices is content to restrict itself to selling music and, doubtless to Hollywood's relief, has no plans to begin selling video. He also said that the company has not ruled out the use of DRM at some stage, bit at the moment is content to stick with the open formats such as MP3.

US trade officials re-emphasised last week that the continuing operation of Allofmp3 is a significant obstacle to Russian membership of the World Trade Organisation. Mamotin insists this is not the case.