In theory, the changes give Instagram (and its parent company Facebook) the right to give your photos to advertisers, without asking you, telling you or paying you.
As well, Instagram would be able to share information about you with Facebook, and use your name, text, photos etc for marketing.
As you might expect, that created a lot of anger on social media today and raised privacy and security concerns.
This afternoon, Instagram put out a statement saying...
"We've heard loud and clear that many users are confused and upset about what the changes mean," Instagram wrote in a blog post.
"We're going to modify specific parts of the terms to make it more clear what will happen with your photos."
"To be clear: It is not our intention to sell your photos," the company said. "We are working on updated language in the terms to make sure this is clear."
Instagram said it will revise its new terms of service before they take effect next month, writing "Please stay tuned for updates coming soon."
The company said its goal is to "experiment with innovative advertising that feels appropriate on Instagram."
The site has never carried ads - or generated any real revenue - but the company said that wasn't the plan forever.
"From the start, Instagram was created to become a business," it wrote.
The new policies are set to take effect January 16.
Users have until then to delete their account. After that, there's no opting out of the changes - at least not yet.
In its original notice regarding the changes, Instagram wrote...
"We may share your information as well as information from tools like cookies, log files, and device identifiers and location data with organisations that help us provide the service to you... (and) third-party advertising partners."
"To help us deliver interesting paid or sponsored content or promotions, you agree that a business may pay us to display your username, likeness, photos, in connection with paid or sponsored content or promotions, without any compensation to you."
Almost immediately, people threatened to shut down their accounts and switch to other photo-sharing services like Flickr.
Others used the hashtag #quitstagram on Twitter.
One person tweeted: "Good bye #instagram. Your new terms of service are totally stupid and nonsense. Good luck playing with the big boys."
New York-based photographer Clayton Cubbit wrote on his account that the new policy was "Instagram's suicide note".
Another user tweeted: "Moving photos to Flickr for the time being #quitstagram flic.kr/p/dBR8wP"
In his market watch blog, The Big Picture, Barry Ritholtz titled his posting "Facebook Destroys Instagram." He criticized the company for "abuse of privacy and data mining about its users."
Facebook is the world's largest social network with more than 1 billion users. It bought Instagram earlier this year for a record $1 billion.
Analysts say it is changing its policies for Instagram to try to find ways to make more money.
Facebook "sees teens as a digital goldmine," Jeffrey Chester told The Financial Post.
Chester runs a group called The Center for Digital Democracy, which focusses on privacy issues.
"We will be pressing the Federal Trade Commission to issue policies to protect teen privacy," he says.
Currently, Instagram has more than 100 million users (many of them teens and young adults) according to Facebook CEO Mark Zuckerberg.
Instagram says it doesn't claim ownership of any content on the service, and nothing will change as far as who is able to see a user's pictures.
It says its overall goal is to protect members, prevent abuse, and make it easier to work with Facebook.
"This means we can do things like fight spam more effectively, detect system and reliability problems more quickly, and build better features for everyone by understanding how Instagram is used," it said in its original statement.
David Murakami Wood is a sociology professor at Queens University. In a statement, he told CBC News...
"The problem with Instagram and indeed with its parent company, Facebook, is that it is working by a form of deception: users are sucked in and upload all kinds of content, and then the company changes the rules and says - 'we will own all of this (unless you tell us otherwise by a certain date).'"
In spite of the legal and ethical questions, analyst Alan Pelz-Sharpe told the BBC "The fact is that Facebook has critical mass, and is quite confident that such moves may cause uproar, but not a flight of business.
"Larger firms like Facebook are essentially trailblazing before specific regulations can catch up with them... so they tend to move forward regardless of opposition."