In a direct challenge to Facebook’s business model, Germany’s competition authority on Thursday sharply curtailed how the tech giant may profile people, saying that users could refuse to allow the company to combine their Facebook information with data about their activities on other sites.

The agency, in a novel antitrust argument, said that the company had exploited its dominant position in the German market by coercing people into giving up their personal data. The social network’s terms of service, regulators said, had unfairly forced people to make an all-or-nothing choice — between submitting to unlimited data collection by the company or not using Facebook at all.

The practice has enabled the Silicon Valley company to collect data about its users’ activities on millions of non-Facebook sites, personal details that helped make the social network a worldwide powerhouse of personalized advertising.

But German regulators ruled that Facebook would now have to stop automatically collecting and combining that data and instead give German users a choice. They also prohibited the company from merging information from Facebook accounts with data from the users’ accounts on other Facebook-owned services, like Instagram and WhatsApp, without permission.