Almost a third of internet users are too scared to hand over their credit card details while shopping online.
They do not believe that buying goods on the internet is safe enough, the Office of Fair Trading says.
Among people who do shop online, 54 per cent feel it is as safe as shopping in the high street - compared with 26 per cent three years ago.
Online markets are failing to reach their full potential because of low consumer confidence in security, OFT chief executive John Fingleton said.
'Online retailing is the future for many businesses and increasingly important to the economy,' he added.
'If consumers are not confident online, demand will grow at a slower rate. So we must tackle these concerns right now if the online market is to grow at its full potential.'
Consumer affairs minister Gareth Thomas insisted more was being done to protect buyers against online fraudsters.
'UK consumers buy almost twice as much over the internet compared to their European neighbours,' he said.
'It's encouraging that the OFT's survey shows increasing consumer confidence when buying online but people still have concerns.'
Britons spent about £43.8billion online last year, according to the Interactive Media In Retail Group.
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