The advert said "all the parts of the internet are on the iPhone".
But the Advertising Standards Authority said because the iPhone did not support Flash or Java - two programs that form part of many web pages - the claim was misleading.
Apple had argued its claim referred to availability of webpages, rather than their specific appearance.
The ASA said the advert "gave a misleading impression of the internet capabilities of the iPhone".
It must therefore not be aired again in its current form, it said.
"Because the iPhone doesn't support Flash or Java, you couldn't really see the internet in its full glory," said Olivia Campbell, a spokesperson for the Advertising Standards Authority.
"They made a very general claim that you can see the internet in its entirety, and actually that's not really true - so we've upheld."
Apple said it did not want to comment on the ruling.
How does your web site look on a cell phone? Are you advertising onto cell phones yet? If not, why not?
Check out how to get your website adapted so it can be seen on an iPhone and all other makes of ell devices at www.www-mobilewebsite.com