Speaking in Washington, Sergey Brin, Google’s billionaire co-founder, said the company, which operates under the motto "do no evil", had adopted "a set of rules that we weren’t comfortable with".
In a hint that Google could adjust its stance in China in the future, he added: "Perhaps now the principled approach makes more sense."
Google’s decision to launch its Chinese site, Google.cn, last year met with a barrage of criticism when it emerged that search results for politically sensitive topics such as the 1989 Tiananmen Square massacre would be censored.
The pact made between Google and China’s leaders led to the internet company being branded "a megaphone for communist propaganda" at a US Congressional hearing called after the move.
Critics including Reporters Without Borders, the press freedom group, have called China "the world champion" of internet censorship. The country has invested heavily in a sophisticated filtering system, dubbed "The Great Firewall", which allows the authorities to search out dissidents and block their sites.
Mr Brin said: "We felt that perhaps we could compromise our principles but provide ultimately more information for the Chinese and be a more effective service and perhaps make more of a difference."
The lure of the massive Chinese market has also seen Google's arch-rivals Microsoft and Yahoo! dragged into the controversy. In particular, Yahoo! has been condemned for handing over e-mail details that led to several outspoken Chinese bloggers being jailed.
However, it is questionable whether Google could afford to turn its back on China's explosive economy.
Yesterday, Times Online revealed how the company has struggled to compete in businesses outside its core search service. Failures to break into fields such as news and financial information could up the pressure on Google to extend the reach of its search tool – already the world’s most popular – into new territories.
In April, Google rebranded itself as "Gu Ge" - or "Harvesting Song" - in China, a move it said demonstrated its commitment to its controversial entry there. Speaking in Beijing at the time, Eric Schmidt, Google's chief executive, said: "We believe that the decision that we made to follow the law in China was absolutely the right one."
Commenting on the massive growth of the Chinese online advertising, Mr Schmidt said: "I don’t know where [Chinese] revenue growth will be, but it will obviously be large."
The attraction of Chinese cyberspace and its massive pool of potential consumers for America's internet giants has long been clear.
Dr Charles Zhang, the chief executive of Sohu.com, China's largest web portal, said there are at least 150 million Chinese internet users, and there could be as many as 200 million. Those figures would place China neck-and-neck with the US in terms of internet users.
Mr Brin was in Washington to ask US senators to approve a plan that would safeguard "net neutrality" – the current online system which means all internet content is handled equally.
In meetings with Republican John McCain, a member of the Senate committee that oversees telecoms issues, he argued against a system that would allow telephone and cable companies to collect premium fees from companies such as Google, Microsoft and Yahoo! for faster delivery of their services
"The only way to have a fast lane that is useful – that people will pay a premium for – is if there are slow lanes," he said.