The controversial advertising system Phorm, which monitors internet users’ online habits to target advertisements, must be opt in, rather than opt out the Information Commissioner’s Office (ICO) has ruled.

The system, which BT, Talk Talk and Virgin have already signed up for, was originally set up so that users would actively have to opt out and the system has already been tested on 18,000 users in secret trials without their knowledge.

"In the view of the Commissioner, Phorm can operate in a way which is in compliance with the Data Protection Act and Privacy and Electronic Communications Regulations 2003 but must be sensitive to the concerns of users, " the ruling reads.

"The Commissioner will keep the Phorm products under review as they are rolled out and his view will be strongly influenced by the experience of those users who choose to participate in any trials and the way in which they are able to make that decision. The Commissioner will also continue to be interested in the dialogue between technical experts and Phorm about the way in which the system operates."

However there is still another hurdle for the advertising company as the ICO has refused to rule on whether the advertising system breaks data interception laws. This must be decided by the Home Office.

Nicholas Bohm, General Counsel for the Foundation for Information Policy Research, said: "BT now say they will no longer monitor their customers' web browsing without their express permission, but they appear to ignore the fact that they can only legalise their activity by getting express permission not just from their customers, but also from the web hosts whose pages they intercept, and from the third parties who communicate with their customers through web-based email, forums or social-networking sites."

"We sincerely hope that the Information Commissioner will reconsider what appears to be a green light for lawbreaking."