The government also spelled out the definition of "virtual currency" for the first time, which includes prepaid cards of cyber-games, according to a joint circular from the Ministry of Culture and the Ministry of Commerce Friday. "The virtual currency, which is converted into real money at a certain exchange rate, will only be allowed to trade in virtual goods and services provided by its issuer, not real goods and services." it said.

China has the world's largest population of Internet users, with 298 million people online as of the end of last year. According to media reports, the virtual money trade topped several billion yuan last year after rising around 20 percent annually. Since 2007, virtual money trading has drawn official attention, with the government demanding tighter controls as such trading became an avenue for gambling and illicit trade.

Under the new rules, using virtual money for gambling will be punished by public security authorities, and minors may not buy virtual money.

The Ministry of Culture also vowed to step up supervision on money laundering via virtual credits and other illegal online activities. The most popular Chinese online credits are "QQ coins" issued by Tencent. com, which has at least 220 million registered users. In a media statement Saturday, the company said it "resolutely" supported the new rule.

The statement said Tencent had strongly opposed the underground trading of virtual money, which could enable online theft and fraud. The company would work with the authorities to combat online crimes, according to the statement.

Cui Ran, an expert on the Chinese online industry, said the regulation aimed to "nip illegal online activities in the bud," as current trading volume was still too small to shake the nation's entire financial system.

But as the trade expanded steadily, with increasing conversions between virtual and real money, there would be an impact on the financial system, he noted.