The UK will set itself up as an online gambling haven but will extradite executives to the US if asked, according to Sports Minister Richard Caborn.
The US effectively banned online gambling with a new law earlier this year, and Caborn and Culture Secretary Tessa Jowell outlined plans to welcome internet gambling companies to the UK and to regulate them.
Jowell criticised the US's stance, saying that the UK will not follow suit. "We do not support the approach the United States has taken," she said. "The enormous risk of prohibition is that it forces the industry underground."
Making unfavourable comparisons to the US's experience with alcohol prohibition in the 1920s, Jowell said that the UK would instead regulate the industry. She said that outlawing it risked driving online betting consumers into criminal hands.
The politicians were speaking at a summit of international delegates who agreed a framework to regulate the industry, agreeing protection for gambling addicts and plans to stop underage gambling.
The Department of Justice in the US had long considered the 1961 Wire Act to outlaw all internet gambling, but a new law, which was rushed through under cover of a port security act, made it illegal for financial institutions to process payments to gambling sites.
The impact on UK-listed gaming companies was severe. Share prices nosedived and Sportingbet sold its US business for one dollar, claiming that it released the company from $27 million of liabilities.
Speculation has mounted in recent days that 888 and PartyGaming would merge, and Ladbrokes has also been linked to a bid for 888.
Two British senior executives of online gaming companies had been arrested in the US prior to the passing of the new law. Though Peter Dicks of Sportingbet was released, David Carruthers from BetonSports still awaits trial.
Caborn said that despite attempts to attract further business to the US, the UK would still respect extradition requests from the US in relation to online gambling. "People have to abide by the laws of particular countries," he said. "We will not acknowledge people who operate illegally."
The US was said by industry sources to account for at least half of the revenues earned by online gambling worldwide. $6.7 billion of the $30bn spent every year is spent in Europe, according to UK government figures.