Amy Winehouse had the year's best-selling album

Music industry body the British Phonographic Industry (BPI) put the 10.8% fall down to copyright theft and difficult retail conditions.

It also said album unbundling - where consumers download individual tracks rather than a whole album - had contributed to the decline.

But download sales boosted the singles market by nearly 30% last year.

Despite best-selling albums from artists like Amy Winehouse and Leona Lewis, only 138.1 million albums were sold in 2007, compared with 154.7 million in 2006.

But the BPI said sales were still 26% higher than they were a decade ago.

Single sales increased from 67m in 2006 to 86.6m in 2007, up 29.3%.

Home-grown talent

"The UK market has shown considerable resilience in recent years while global recorded music markets have declined," said BPI chief executive Geoff Taylor.

"The industry's move to tap into a wider pool of revenue streams, particularly in digital, will take time to offset the combined impact of digital piracy, album unbundling and difficult retail trade conditions," he added.

Amy Winehouse's Back to Black was the most popular album of 2007, with 1.85 million copies sold.

Leona Lewis' debut album Spirit came second, even though it was only released in November.

Lewis also topped the 2007 singles sales chart with Bleeding Love.

For the second consecutive year, more than 60% of the year's best-selling albums came from home-grown acts including Take That, Kaiser Chiefs and Arctic Monkeys.