Baroness Rawlings, a Government spokesperson, told the House of Lords the Coalition will help the Private Members' Bill become law, but with caveats.
The Bill, tabled by Lib Dem Lord Clement-Jones, includes plans to offer a licensing exemption to pubs that host gigs attracting an audience of 200 or fewer.
But Baroness Rawlings said certain criteria had to be met for the Bill to get the coalition's full support.
This would mean the "technical aspects" of de-regulation being examined to ensure there no "unintended adverse consequences".
She also suggested the Government would want unlicensed performances to finish at 11pm, instead of midnight. The effect the Bill will have on current licensing conditions will also have to be looked at, she added.
And a full impact assessment of the Bill will also be carried out by the Government.
"We see it (the Bill) as an important and complementary part of any reform and we will do all we can to help the Bill reach the statute book, if appropriately amended," Baroness Rawlings said.
Lord Clement-Jones said he was "delighted" the Bill had received such a "positive reception".
He later added, "The Live Music Bill will benefit hundreds of small pubs, restaurants and church and community halls who want live music at their venue by generally removing the need to apply for a complicated licence.
"I'm glad the Government has responded so positively to this Bill and I look forward to working with them to fulfil the coalition agreement's pledge to put an end to red tape and bureaucracy."
The Coalition Government had committed to cutting red tape on small scale live music, but so far stalled on announcing its plans on how to tackle this.
Earlier, the Bill received plenty of support from peers, including Michael Grade, the former ITV chairman, who was making his maiden speech in the Lords.
James Wilmore is the deputy news editor of The Publican.