"It's vital that we continue offering an on-demand free service to you and millions more like you, but to make that possible we have to put some limits in place going forward," Spotify co-founder Daniel Ek wrote in a blog post.
The new limits, set to go into effect on May 1st, will limit users to six months of free, unrestricted access to Spotify's catalogue of songs.
After the six-month introductory period, users will be limited to ten hours of free listening per month, and will only be able to play any individual track a total of five times.
The changes have the greatest impact on heavy users who use Spotify's free service to discover new music, according to Ek, pointing out that such users currently listen to about 50 new tracks every month.
"The average user won't reach the limit on plays for 7 out of 10 tracks, even after a year," said Ek, who went on to encourage users who may reach the new limits to consider moving over the Spotify's fee-based services, which won't be affected by the changes.
Ek said the restrictions on Spotify's free service were necessary to "continue making Spotify available to all in the long-term" but emphasised that the company nevertheless saw its free service as "vital".
Launched in in 2006, Spotify is one of the world's largest streaming websites boasting over one million paying users.
The service allows users to stream music to their computers for free in exchange for listening to advertising.
Users can also pay 49 or 99 kronor ($7.75 or $15.70) to gain ad-free access to the service.
The 99 kronor version allows users to listen to their playlists offline and to access their music through their mobile phones.
In his blog post, Ek also mentions "awesome new features" are in store for Spotify in the coming months as well as "exciting developments" to be revealed in within a few weeks, a possible reference to the long-rumoured launch of Spotify in the United States.
According to the TT news agency, Spotify's free service has been a stumbling block in the protracted negotiations involved with bringing Spotify to the US market.
The changes announced on Wednesday may help ease discussions, thus paving the way for Spotify to establish itself in the United States.