The Facebook-owned service is claiming the right to sell users' photos to advertisers without notification and share personal data with its parent company.
Account holders can only opt out by deleting their Instagram profile before the changes come into effect on January 16.
"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," said Instagram in a statement.
"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."
The photo-sharing company is standing by the changes, insisting they have been introduced to serve users more effectively and tackle spam and malware.
The Facebook-owned company has made headlines on a few occasions of late, with its decision to drop Twitter support sparking rumours of a feud with the microblogging site.
Instagram has denied any ill feeling towards the social network, but Twitter has since launched a competing photo-filtering tool to fill the void.
Facebook acquired Instagram in a deal worth $1 billion (£616 million) earlier this year.