It said instead that users had incorrectly interpreted its revised terms of serviced, which it blamed on its “confusing” choice of language.
Instagram’s clarification follows much user opposition to the believed change.
“To be clear: it is not our intention to sell your photos,” it said.
Instagram chief executive Kevin Systrom said in a blog posting: “It is our mistake that this language is confusing.
“We are working on updated language in the terms to make sure this is clear.”
Compulsory changes to Instagram’s terms of service are due to come into effect on 16 January,
The originally proposed new wording that caused the controversy included: “You hereby grant to Instagram a non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the content that you post on or through the service.”
The terms also stated that “a business or other entity may pay us to display your username, likeness, photos, and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you.”
Following Instagram’s denial, the Electronic Frontier Foundation, a US pressure group that campaigns for consumer rights on websites and in social media, told the BBC that “there appeared to be a little bit of a word game at play here”.
“It clearly looked like Instagram was indeed grabbing the extra rights,” added spokesman Parker Higgins.
“It is hard to evaluate the damage this may cause to the company at this early stage, but any social network risks losing the trust of its users. And social networks depend on users being willing to share information, on users seeing them in good terms.”
Facebook bought Instagram for $1bn (£616m; 758m euros) in April of this year.
Instagram now has 100 million users.