The Information Commissioner's Office (ICO) has said it will monitor an upcoming BT trial of targeted advertising system Phorm to gauge internet users' reaction to the service.

The controversial system sends advertising to users based on the web sites they visit.

The ICO said it is in ongoing discussions with Phorm, which is allowing its technology to be scrutinised by experts.

"We believe that it is only by allowing their technology to be subject to detailed scrutiny by independent technical experts that they will be able to prove their assertions regarding privacy," said an ICO spokesman.

Phorm claims that its system does not allow the retention of individual profiles of sites visited and adverts presented, and that it holds no personally identifiable information on web users.

BT will run a trial involving 10,000 broadband users later this month.

Last week it emerged that BT had trialled Phorm's technology in 2007 without informing customers.

BT claimed that the trial was legal because individual users' information remained anonymous – but privacy campaigners said it was a breach of the Regulation of Investigatory Powers Act (RIPA) 2000, which makes it an offence to intercept internet traffic without consent or a warrant.

Phorm is also negotiating deals with ISPs Virgin Media and Talk Talk.