Facebook is paying $1bn to buy Instagram, a fast-growing online photo-sharing site, in its largest acquisition to date.

The purchase, for cash and stock, extends the social networking site’s reach in online photos, an area it already dominates through its own pictures service.

Set up just two years ago, Instagram – which was named iPhone application of the year by Apple last year – has grown rapidly to become one of the most popular applications running on Apple’s iOS operating system. Its number of registered users has almost doubled to 27m in the past four months. Last week it introduced its app for Android devices.

Instagram is known for the filters and effects that users can apply to pictures before sending them on to their social networks over services such as Facebook, Twitter, Flickr, Foursquare and Tumblr. While there are many similar photo apps – including Picplz, Path, Camera Awesome and Hipstamatic – Instagram has quickly grown to be the leader.

The deal is reminiscent of Google's acquisition of YouTube for $1.65bn in 2006 when video was becoming the latest web craze. The price seemed high at the time and it has taken years to show signs of paying off.

The blogosphere on Monday questioned whether Facebook was also paying too much. TechCrunch reported Instagram, with only 11 employees, had just closed a $50m funding round valuing it at $500m.

In a break with previous acquisitions, Facebook said it would not fully integrate the Instagram service into its own site, but would continue to expand the site “independently”. In a blog post, Mark Zuckerberg, Facebook’s chief executive, wrote: “Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.”

The acquisition of an established site with a large number of its own users marks a new departure for Facebook, but Mr Zuckerberg said it was unlikely to signal a trend: “We don’t plan on doing many of these, if any at all.”

The deal could also signal a more open approach to connecting with other internet services than Facebook has adopted in the past. Users of Instagram will be able to continue posting their pictures to other social networks.

“These and many other features are important parts of the Instagram experience and we understand that,” Mr Zuckerberg wrote. “We will try to learn from Instagram’s experience to build similar features into our other products.”

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