Any new competitors must comply with the rules, which took effect last Thursday, the government said.

The rules, announced abruptly in December, appeared to be aimed at extending China's pervasive Web censorship ahead of the Beijing Olympics and prevent unflattering videos from popping up. But industry analysts said regulators would be reluctant to enforce them strictly and possibly damage a promising industry.

"Companies that began operation legally before the regulation was issued and have not violated laws or regulations can be licensed and continue operating," said a statement issued by the two agencies that imposed the rules, the Ministry of Information Industry and the State Administration of Radio Film and Television.

Video-sharing services that were launched after the rules were issued "must comply," the statement said.

China's video-sharing sites are all privately owned, and the rules could have forced some out of business. Industry analysts had expected companies to try to comply by forming partnerships with state-owned broadcasters or newspapers. No such deals have been announced.

Online video has exploded in popularity in China, which has 210 million people online and says it expects to surpass the United States this year as the biggest population of Internet users.

Estimates of the number of video-sharing sites in China run into the hundreds. The most popular, such as Tudou.com, 56.com and Youku.com, say they get as many as 100 million viewers a day, a scale that rivals China's state TV channels. Some offer full-length television programs, but many popular videos are created by amateurs.

That rapid growth appears to have caught regulators by surprise and prompted them to rush new rules into place.

A key question in the industry has been how regulators will treat amateur videos. The statement Tuesday gave no indication whether they would still be allowed.

Such videos have made stars of some of their amateur creators, but the phenomenon is at odds with the communist government's insistence that all media be state-owned.

Online video revenues, mostly from advertising, are modest but are growing nearly 100 percent a year, and investors are pouring money into sites.

The government-sanctioned Internet Society of China is forecasting total revenues this year of 160 million yuan (US$22 million; £á15 million) this year - nearly double the 2007 level. It says revenues will increase to 290 million yuan (US$40 million; £á27 million) in 2009.

The eight top companies in the field have taken in US$190 million from private investors since 2005, according to BDA China Ltd., a consulting firm.