The deal, which takes effect later this year, settles a taxing problem for YouTube and allows it to avoid legal action for breach of copyright.
The deal comes in the wake of accusations by music industry executives that it and similar sites are breaking the law.
YouTube is developing an automated system that will identify copyrighted music and video that has been uploaded by users. A percentage of advertising revenues from ads appearing with that content will then be given to Warner. The firm also said that it would make the system available to other copyright owners.
Chad Hurley, YouTube's chief executive, told The Wall Street Journal: "Warner Music Group becomes the first media company working with us to truly embrace the power of user-generated content and allow users to use their content in legal ways, and be able to benefit by generating revenue."
Warner acknowledged that the continued growth of websites such as YouTube and MySpace is inevitable and that the entertainment industry should embrace the phenomenon rather than try to stop it.
News of the Warner deal comes less than a week after Universal Music Group chief executive Doug Morris accused YouTube and MySpace of violating copyright laws.
"We believe these new businesses are copyright infringers and owe us tens of millions of dollars," he said at a conference in Pasadena.
"We've reached out [to Universal Music] to let them know we're willing to work with them," YouTube's Hurley said.
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