Intrade, based in Dublin, Ireland, announced the decision on its website hours after the U.S. commodities regulator sued the exchange's owner, alleging it allowed unauthorized trading by U.S. customers.

U.S. customers must close their accounts and withdraw all funds by the end of the year, according to the statement.

"We understand this announcement may come as a surprise and a disappointment, and we apologize for the short notice and haste required to deal with this," Intrade said.

The decision — and the civil suit preceding it — underscores the murky legal horizon in the United States for most online betting. Federal law bans online sports betting, while a 2011 U.S. Justice Department opinion that brightened prospects for online poker has had little effect.

Intrade, like other online prediction markets, allows users to buy or sell shares that represent the likelihood of an event occurring.

Interest spiked during this year's U.S. presidential campaign, when Intrade odds were closely watched by financial markets and media. On the morning of Election Day, Nov. 6, Intrade showed President Barack Obama with a 68.2 percent chance of winning re-election.

Around 6,000 traders, three-quarters of whom were American, with the rest in Europe and Canada, bought a total of 4.1 million shares on Obama. Each of those shares ultimately paid out $10, while the 3.4 million shares traded on the loser, Republican challenger Mitt Romney, did not pay out.

The U.S. Commodity Futures Trading Commission (CFTC) said in its suit that Intrade offered trading to U.S. customers on the future prices of commodities such as gold and crude oil, despite a 2005 agreement not to offer trades on those and certain other items.

The suit, filed in U.S. District Court in Washington, D.C., made no mention of the presidential election market.

Representatives for Intrade did not respond to requests for comment on Monday.

'A Nice Ride'

The company's statement encouraged U.S. customers to begin shutting their accounts immediately, and it said the company would waive fees to facilitate the process.

Commenters on Intrade's online forum expressed shock and wondered whether the market would succeed without U.S. customers. "Well, I guess it was a nice ride while it lasted," said one commenter.

The electronic exchange offers a wide array of subjects to bet on, such as which film will win the Academy Award for Best Picture or whether Syria President Bashar al-Assad will remain in power into 2013.

Intrade is not supposed to accept or execute orders from U.S. customers on subjects that fall within the CFTC's ban on trading options off-exchange, but it did so from September 2007 through June 2012, the suit said.

"We will intervene in the 'prediction' markets, wherever they may be based, when their U.S. activities violate the Commodity Exchange Act or the CFTC's regulations," said David Meister, director of the CFTC's enforcement division, in a statement.

The suit further alleged that the company misled the CFTC by submitting a form each year certifying that it limited trades to eligible participants when it did not.

The commission notified Intrade's parent company, Trade Exchange Network, of alleged violations of their 2005 agreement in March, but the company "has failed to cure, or attempt to cure, its violations," the suit said.

The suit asks a federal judge to find Intrade in violation of federal commodities law, issue an injunction against any illegal conduct and fine the company.

Intrade has not been charged criminally with any wrongdoing.