The US crackdown on online gambling is a "new prohibition", which is likely to fuel a rise in fraud and exploitation, the UK culture secretary has said.
Ms Jowell said regulation would help overcome exploitation
Offshore sites could become the "modern equivalent of speakeasies", illegal bars which opened in 1920s America when alcohol was banned, Tessa Jowell added.
New US laws forbid firms from taking internet bets, and ban banks and credit card firms from allowing web payments.
Ms Jowell said regulating sites worked better than prohibition.
Under UK government plans, the Gambling Commission is to vet sites, giving official approval to those with the best working practices.
Operators will not be allowed to target children and must keep customers informed about how much money they have spent.
Key staff, such as managing directors and finance managers, will also be checked for links to organised crime.
Ms Jowell said: "Broadly speaking we have three choices: you can prohibit, like the US, do nothing or regulate, like we have.
"I firmly believe we have chosen the path that will do the most to protect children and vulnerable people and keep out crime."
She added: "America should have learnt the lessons of prohibition. The Volstead Act [which brought in prohibition in 1919] was meant to stop alcohol from causing harm, but in practice it forced otherwise law-abiding customers into the hands of the bootleggers.
"If it goes wrong, there is a real danger is that off shore sites based in poorly regulated countries will become the modern day equivalent of speakeasies, increasing the risk of exploitation and fraud."
'Lack of regulation'
Ms Jowell said there was a danger of the US government popularising badly regulated offshore gambling sites.
The US legislation, approved this month by President George W Bush, is expected to hit UK firms, as it closes off a large part of the global market.
Costa Rica, the country which hosts the most internet gambling sites in the world, advertises its "lack" of regulation.
The website costarica.com says: "When you use an online casino based in Costa Rica you are playing at your own risk and you are at the mercy of the online casino's good faith to fulfil its representations.
"Casinos may decide at their own discretion not to pay what you have earned and there is no way you can collect those monies since it is illegal in Costa Rica to collect money based on gambling."
Ms Jowell will be hosting a summit on online gambling next week, with politicians from 30 countries discussing how to achieve international regulations.