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"I hope it will close another chapter from the Holocaust," said Dismore. "It means recognising a right that has been denied for decades. I suspect many people would be prepared to allow their artwork to stay in public collections but it's their right to decide what happens to it." The bill gets its second reading on 15 May.

The move has been prompted by a number of cases, including that of Arthur Feldmann and his wife Gisela. When the Germans invaded Czechoslovakia in 1939, the Feldmanns were evicted from their home, leaving a collection of Old Master drawings in Gestapo hands. Arthur died after being tortured by the Nazis in the Spilberk Castle prison in his home city of Brno. Gisela died in Auschwitz.

With the help of the London-based Commission for Looted Art in Europe, Feldmann's descendants proved that four of his drawings had ended up in the British Museum. The museum was prepared to return them to the family but was blocked by a high court judge. Instead the family negotiated a deal, including an ex-gratia payment of £175,000, that allows the drawings to remain in London.

Feldmann's grandson Uri Peled, 66, who lives in Israel, said that although he did not wish to have the items returned, the principle of the bill - allowing the rightful owner to make the decision about what to do with their art - was important.

"I am positive that Britain, a great democracy, will introduce such a law," he said. "We were very pleased to leave the drawings with them [the British Museum] for the memory of our grandfather."

The Commission for Looted Art in Europe has helped to restore more than 3,000 items, including paintings, drawings, silver, books and manuscripts to their rightful owners over the past 10 years. However, experts expect the bill to apply to a relatively small number of items in UK museums. One such item could be Cupid Complaining to Venus, by Lucas Cranach, dated 1525. The painting, now in the National Gallery, was once part of Adolf Hitler's private collection but its ownership between 1909 and 1945 remains a mystery.

The legislation is being drafted to apply to "objects stolen between 1933 and 1945 by the Nazi regime" to avoid bids to repatriate disputed artefacts such as the Parthenon sculptures, Rosetta stone, Benin bronzes and Lewis chessmen.

Christopher Price, deputy chairman of the British Committee for the Reunification of the Parthenon Marbles, said: "It will give us publicity, even if it won't shift the law. It could lead to more discussions about possible legislation on other disputed objects."

Price said the issue was timely because the Greeks are preparing for the official opening in June of a new €129 Acropolis museum to showcase the Parthenon sculptures. The building has space for the pieces removed by Lord Elgin in the 19th century and sold to the British Museum.

The museum said it was the legal owner of the sculptures and there could be no comparison to Nazi loot.

The Department for Culture, Media and Sport said the principle of the bill "is very much accepted ... There will be attempts to broaden it beyond the Nazi era and one has to be aware of that and draft it in such a way that the risk is eliminated."

Stepping up the hunt

Despite commitments made after the second world war, hundreds of thousands of artefacts stolen by the Nazis have not been returned to their rightful owners. However, over the last decade, the UK - like other governments - has stepped up efforts to help Holocaust survivors and their relatives trace and recover lost arts of work. The major UK museums maintain databases of items in their collection where there are gaps in provenance from 1933-45, while not-for-profit organisations like the Commission for Looted Art in Europe helps families and institutions research and recover looted property. To resolve cases where ownership is disputed, the government set up a committee known as the spoliation advisory panel in 2000. The panel can recommend financial compensation, an ex gratia payment and that an item be returned to its owner - but in the case of the UK's 16 national museums and galleries it is currently powerless to enforce restitution.