The company, now under the wing of Facebook, has been hit with what Reuters reported is the first civil lawsuit to result from changed terms of service.
California user Lucy Funes accused the photo-sharing service of a breach of contract and other misdeeds in a proposed class action lawsuit filed against Instagram in San Francisco.
"[Instagram's] unreasonable change of Terms accordingly violated the implied covenant of good faith and fair dealing inherent in Instagram's current Terms," the legal action read. Funes is seeking a jury trial and recompense for the alleged breach of service terms.
"We believe this complaint is without merit and we will fight it vigorously," Facebook said in an emailed statement.
Instagram did not immediately respond to a request for comment.
"Our intention in updating the terms was to communicate that we'd like to experiment with innovative advertising that feels appropriate on Instagram," CEO Kevin Systrom wrote in a blog post last week.
"Instead it was interpreted by many that we were going to sell your photos to others without any compensation. This is not true and it is our mistake that this language is confusing," he added.
The new terms, which were scheduled to go into effect on 16 January, 2013, were revamped late last week, removing advertising-related changes and placing the modifications on hold.
Still, Funes said she is fighting for all Instagram users by suing the service.
"On behalf of a class of Instagram's California customers, [the] Plaintiff is acting to preserve valuable and important property, statutory, and legal rights, through injunctive, declaratory, and equitable relief issued by this Court before such claims are forever barred by adoption of Instagram's New Terms," the filing said.
"For this reason, even though the New Terms are not yet effective, this case is 'ripe' for adjudication."