Internet ad expenditure grew by 17.1% year on year in 2008 to £3.35bn, an increase of £540m compared to 2007, according to the Internet Advertising Bureau.
Online spending increased its share of total UK ad expenditure from 15.5% to 19.2% in a year when UK ad spend fell by 3.5% to £17.5bn.
In the second half of 2008, the internet's share of all adspend actually peaked at 19.8%, overtaking total press display (all UK newspaper and magazine advertising combined).
Online display advertising grew by 7.7% to £637.4m, accounting for 19% of all online advertising expenditure.
The core embedded formats, such as banners, skyscrapers and video, attracted an increasing number of advertisers, accelerating the decline of interruptive formats such as popups, which only accounted for 0.4% of all online spend in 2008.
The IAB predicts pop up ads will be virtually extinct by the end of the decade.
Paid-for search grew by 22.7% to £1.99bn, which is a 59.3% share of all online advertising.
Classified growth remained healthy, up 22.2% to £715.2m - a share of 21.4%. Online classifieds across recruitment, property and automotive increased, as these sectors migrated from print to digital formats.
Guy Phillipson, chief executive of the IAB, said: "These are really tough times and advertising budgets are being slashed. More than ever, marketers have to demonstrate a clear return on their media investment - and accountability is online's trump card.
"UK advertisers have become digital savvy and they're now using rich media, ad networks and search in intelligent ways to achieve their sales and brand targets. This shift to digital has propelled online to become a 20% medium."
The IAB research was carried out in partnership with PricewaterhouseCoopers (PwC) and the World Advertising Research Centre (WARC),
Phil Stokes, UK head of entertainment and media at PricewaterhouseCoopers, said: "As audiences continue to migrate to an online environment for commerce, information, social interaction and entertainment, advertisers are following in ever greater numbers.
"The growth in broadband household penetration is allowing a far richer mix of video entertainment and advertising to create a 'near-TV' feel for mass audiences online. Advertisers can see new and innovative ways to build and sustain brands with targeted advertising."
The IAB released its US results yesterday, which revealed an 11% increase in online ad revenues in 2008 to $23.4bn (£16.3bn).
Search advertising was also the main driver of revenue growth in the US, up 19.8% from 2007 to $10.6bn. Revenue from display advertising grew 8% to $7.6bn.
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