Craigslist recently toppled MySpace as the most visited site
The US classified ads website Craigslist says it will remove its erotic services category following claims it promotes prostitution.
Law enforcement officials have said prostitutes and clients use the site for illegal sexual encounters.
In place will be a new adult services section that will be closely monitored.
"We are optimistic that the new balance struck will be an acceptable compromise," Craigslist chief executive Jim Buckmaster said.
In recent months the spotlight has been turned on the San Francisco company, following a series of high-profile cases.
One that gained huge national attention involved Phillip Markoff, 23, who has been charged with killing a young woman who offered her services as a masseuse on Craigslist.
Julissa Brisman, 26, was found shot dead in a hotel room in Boston last month.
The case was widely covered in the media, with Mr Markoff being dubbed the Craigslist Killer.
Tom Dart said he will still keep a close eye on the site
Earlier in the year, the site attracted the attention of a number of law enforcement officers.
One of the most vocal critics of the erotic services adverts was an Illinois sheriff who sued the site in a federal court.
Sheriff Thomas Dart said Craigslist was failing to block offers to trade sex for money. He called the site "the single largest source of prostitution in the nation".
He said this latest move by the site was "a major step in the right direction".
Last week South Carolina's attorney general Henry McMaster threatened the management of Craigslist with prosecution if it did not remove the local erotic services posting within 10 days.
Last November Craigslist announced a deal with 40 state attorney generals that said it would charge for erotic services ads and require advertisers to use a credit card for payment.
This was seen as a way for authorities to track them down.
Existing adverts in the erotic services section will remain for the next seven days.
The new adult services category has now opened for postings by "legal adult service providers".
The site is best known for selling bikes and finding places to rent
Matt Zimmerman, a lawyer with the Electronic Frontier Foundation, who specialises in freedom of speech and civil liberties law, said Craigslist acted voluntarily and was not legally obliged to regulate content on the site. He said: "Federal law states that no website operator can be held responsible for content provided by third parties."
Illinois attorney general Lisa Madigan, who had called the section "nothing more than an internet brothel", said authorities would monitor these new ads.
"I'm encouraged Craigslist has agreed to fundamentally change how they operate and monitor their site," said Ms Madigan in a statement.
Craigslist, which donated all of the profits from "erotic services" ads to charity, has insisted all along that the site is relatively safe.
"Contrary to some of the sensationalistic journalism we've seen these past few weeks, the record is clear that use of Craigslist classified is associated with far lower rates of violent crime than print classifieds, let alone rates of violent crime pertaining to American society as a whole," said Mr Buckmaster.
The website's about-turn was hailed as a victory for common sense by Connecticut attorney general Richard Blumenthal who headed up a multi-state attorney general task force on the matter.
Fans of the site reacted angrily to the announcement and said regulation went against the ethos of Craigslist.
Blumenthal said: "Craigslist is heeding our clear call for conscience and common sense, sending a strong signal that Internet sites must police themselves to protect others."
Craigslist was started in 1995 as a hobby by founder Craig Newmark, who put together an e-mail list of events happening in San Francisco.
A skeleton staff of 28 employees works out of a town house in San Francisco and Buckmaster has long said his priority is making users' lives easier, not making money.
Forty million adverts are posted on Craigslist each month.
While some users praised Craigslist's decision as responsible, others were appalled. Site user Martin Genev said: "This is just the beginning. The danger is that it gets so regulated that people don't find it useful anymore."