UK consumers bought £8.2bn ($14.3bn) of goods from websites last year - up 28.9% on 2004, according to market analysts Verdict.
More of us are choosing to buy over the internet
Shoppers spent an extra £1.8bn online last year compared with 2004.
Verdict says the figures show internet shopping is closing in on the £9.4bn spent in department stores in 2005.
Its retail analyst, Nick Gladding, said online shopping was now a "formidable competitor" to the High Street as it allowed people to trawl for prices.
A quarter of all UK shoppers now buys goods over the internet, Verdict said, as the online shopping community grew by 25.5% to 14.6 million people between 2004 and 2005.
The surge in "e-retail" means online shopping is now winning its biggest-ever slice of the UK retail market.
Overall UK retail sales grew by just 1.5% in 2005 - the slowest rate since the early 1960s.
Verdict says online competition had a significant impact on some traditional stores, according to its e-Retail 2006 report.
Mr Gladding said that the internet not only offered lower prices, but also allowed customers to shop at times convenient for them.
One of the biggest growth sectors in online shopping is among the over-55s, with numbers almost doubling to 2.7 million users between 2004 and 2005.
And the amount spent by this sector rose 46.7% to an average £458 per head, while shoppers aged 35 to 44 are the biggest spenders, accounting for £3 in every £10 of retail sales.
The report comes a month after a report from e-commerce trade body IMRG said internet shopping among UK consumers soared almost 50% in the 10 weeks before Christmas.
Shoppers spent £4.98bn online during the period, compared with £3.3bn for the same time a year earlier, it said.