Authorities in the US have announced Facebook will pay a record $5 billion fine and have to impose "sweeping" new privacy restrictions.
The settlement comes after the Federal Trade Commission (FTC) alleged the social network violated its rules "by deceiving users about their ability to control the privacy of their personal information"
It is claimed the company shared users’ personal information with third-party apps that were downloaded by the user’s Facebook friends - with "many users" unaware that the data was being shared.
US officials said the $5 billion penalty is 20 times greater than the previous largest privacy or data security penalty ever imposed anywhere in the world.
The tech giant will also have to restructure its approach to privacy from the 'corporate board-level down'.
New mechanisms will also ensure that Facebook executives are accountable for the decisions they make about privacy, the FTC said.
They said their order will remove "unfettered control" by Facebook CEO Mark Zuckerberg over user privacy decisions.
The company will no longer be allowed use phone numbers supplied for security features - such as a two-factor sign-in process - for advertising purposes, and will have to regularly ensure passwords are being held in encrypted format.
FTC chairman Joe Simons explained: "Despite repeated promises to its billions of users worldwide that they could control how their personal information is shared, Facebook undermined consumers’ choices.
"The magnitude of the $5 billion penalty and sweeping conduct relief are unprecedented in the history of the FTC.
"The relief is designed not only to punish future violations but, more importantly, to change Facebook’s entire privacy culture to decrease the likelihood of continued violations."
Facebook earned around $55.8 billion in revenues last year, with the new penalty representing almost 10% of that amount.
Meanwhile, the FTC separately announced it is suing controversial data analytics firm Cambridge Analytica.
It has also reached a settlement with the company's former CEO Alexander Nix and app developer Aleksandr Kogan over alleged "deceptive tactics to harvest personal information" from tens of millions of Facebook users.
The settlement will restrict how the two men conduct any future business, as well as requiring them to delete or destroy any personal information they collected.
Cambridge Analytica itself has filed for bankruptcy in the US and has not reached a settlement with US authorities.
The firm was accused of acquiring the data of 87 million Facebook users through Mr Kogan, an academic researcher.
Amid international controversy to the allegations and revelations, Cambridge Analytica began insolvency proceedings in the UK last year.