"These notices are misleading and companies cannot use them to demand money from Canadians," said Jake Enright, a spokesman for Industry Minister James Moore.
Officials will be contacting Internet Service Providers (ISPs) and rights holders within days to put an end to the practice, he said.
The issue surfaced on Thursday, when University of Ottawa law professor and respected industry blogger Michael Geist posted a letter from a rights holder that threatened civil liabilities of up to $150,000 per infringment.
Canadian law caps liability for non-commercial infringements by individuals at $5,000.
Recent legal amendments require ISPs to pass on to their customers copyright infringement notices from media companies.
The opposition New Democratic Party earlier on Friday urged the Conservative government to close what they called a loophole.
"The Conservatives are letting these companies send false legal information to Canadians in order to scare them into paying settlements for movies or music no one has even proved they've actually downloaded," NDP Industry Critic Peggy Nash said.
Geist said ISPs should reassure customers that their personal information has not been disclosed and point out Canadian law on the issue.
He urged the government to penalize companies that send false information or make "misleading settlement demands."
The letter posted by Geist, sent by Rightscorp Inc on behalf of music rights manager BMG Rights Management to an unidentified Canadian ISP, also offered a legal release from the copyright owner for $20 per infringement.
It is not clear how many of these letters have been sent out in Canada, or how many people have opted to settle.
The Canadian lawyer retained by Rightscorp, Susan Abramovitch, did not immediately respond to a request for comment.
Canada's biggest telecom company, BCE Inc , said it adds its own message to the notices it is legally obliged to pass on, pointing out that it played no part in identifying the possible unauthorized use of content.
© Thomson Reuters 2015
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