Facebook will pay $US1 billion in cash and stock for mobile photo-sharing application Instagram, in a deal that has been called "stunning".
Facebook founder Mark Zuckerberg posted the news of the deal on his Facebook timeline this morning and it received 60,000 likes in just over 30 minutes.
It will be the social networking giant's largest acquisition to date and comes just weeks before its highly-anticipated IPO.
"I'm excited to share the news that we've agreed to acquire Instagram and that their talented team will be joining Facebook."
"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 Instagram app is predominantly used to upload photos to social networking sites like Facebook and Twitter. It allows users to add filters and effects like sepia tone to pictures taken on smartphones.
It has gained around 30 million users since it first launched in January last year and today, its founders hailed the deal.
"Today, we couldnt be happier to announce that Instagram has agreed to be acquired by Facebook," co-founder Kevin Systrom said in a blog post.
Reuters said the price was "stunning" for an apps-maker without any significant revenue, even with soaring startup valuations in Silicon Valley, as Facebook sought to absorb a potential rival or at least prevent it from falling into the hands of a major competitor like Twitter or Google.
As Instagram's popularity has shot up in recent months, the company's leadership has mulled possible strategies to expand the service into a fully featured social network - much like a photo-driven, stripped-down version of Facebook, Twitter, or even Path, a company insider said.
Instagram is "a property that would have been amazingly valuable to not just Facebook, certainly Twitter was in the hunt as well," said Lou Kerner, founder of the Social Internet Fund.
"I'm sure Google was interested as well. So to some degree an acquisition like this is both offensive and defensive. It would be a highly leveragable asset for anybody who wanted to compete against Facebook."
Zuckerberg said Facebook is committed to building and growing Instagram independently.
"For years, we've focused on building the best experience for sharing photos with your friends and family. Now, we'll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests."
He said the company will keep features such as the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook.
"This is an important milestone for Facebook because it's the first time we've ever acquired a product and company with so many users."
Instagram's founders were quick to stress that the popular app
would not be changed significantly.
"Its important to be clear that Instagram is not going away. Well be working with Facebook to evolve Instagram and build the network... The Instagram app will still be the same one you know and love," they said today.