YouTube’s general head of business, Robert Kyncl, told the Financial Times on Tuesday that videos by independent labels would be gone "within a matter of days" if they refused to sign up to its new streaming service.
Artists including Adele and Jack White, who are signed by XL Recordings, and Arctic Monkeys and Hot Chip, under Domino, could be affected.
While Kyncl claimed that "90 per cent of the music industry" has agreed to the royalty rates of its new ad-free streaming service, a number of influential independent labels have refused.
Music giants Sony, Warner and Universal, have all reportedly accepted the terms.
But smaller abels have accused the video-sharing giant of making a “grave error of judgement”, by offering them non-negotiable terms over the impending subscription service.
Most-watched videos on YouTube
Most-watched videos on YouTube
1/10 Most-watched videos on YouTube
Psy - 'Gangnam Style'
2/10 Most-watched videos on YouTube
Justin Bieber - 'Baby'
3/10 Most-watched videos on YouTube
Jennifer Lopez ft. Pitbull - 'On the Floor'
4/10 Most-watched videos on YouTube
'Charlie Bit My Finger - Again!'
5/10 Most-watched videos on YouTube
LMFAO ft. Lauren Bennett and GoonRock - 'Party Rock Anthem'
6/10 Most-watched videos on YouTube
Shakira - 'Waka Waka (This Time For Africa)'
7/10 Most-watched videos on YouTube
Eminem ft Rihanna - 'Love the Way You Lie'
8/10 Most-watched videos on YouTube
Psy - 'Gentleman'
9/10 Most-watched videos on YouTube
Miley Cyrus - 'Wrecking Ball'
10/10 Most-watched videos on YouTube
Katy Perry - 'Roar'
The Worldwide Independent Music Industry Network (WIN), which represents independent firms, also complained that the terms undervalue existing deals with existing streaming firms Spotify and Deezer.
They are now urging the Google-owned site to take part in negotiations so they can agree on a deal.
Alison Wenham, the CEO of WIN said, "Put simply, by refusing to engage with and listen to the concerns of the independent music sector YouTube is making a grave error of commercial judgment in misreading the market.
"We have tried and will continue to try to help YouTube understand just how important independent music is to any streaming service and why it should be valued accordingly."
She added that music fans want to be able to access a wide range of music - something which Spotify and Deezer both do and "have excellent relationships with the independent music sector."
"By not giving their subscribers access to independent music YouTube is setting itself up for failure. We appreciate that a small number of independent labels may have their own reasons for agreeing to YouTube's terms, that is their prerogative, but they are very much in the minority.
"The vast majority of independent labels around the world are disappointed at the lack of respect and understanding shown by YouTube. We once again urge YouTube to come and talk to us," she said.
Kyncl told the newspaper that they intended to press ahead with the service regardless.
He said: ”While we wish that we had 100% success rate, we understand that is not likely an achievable goal and therefore it is our responsibility to our users and the industry to launch the enhanced music experience."
Additional reporting by PA