As if this wasn't bad enough - and potentially in conflict with UK communications legislation, Infosecurity notes - the updated T&Cs also allow Yahoo to eavesdrop on messages sent by non-members.
According to the consumer magazine, Yahoo claims its members are responsible for notifying non-members about this feature, something that a Which legal professional describes as "nonsensical and unrealistic."
Sarah Kidner, the magazine's editor, said: "This is a blatant intrusion of privacy. People should have the right to send messages without Yahoo! snooping through them."
According to the report, privacy advocates say the changes are an intrusion of privacy.
"It's extremely disappointing that Yahoo has opted to intrude on privacy in this way", Daniel Hamilton, director of Big Brother Watch told the magazine.
"Web users have a right not to see their personal messages trawled through in order to boost Yahoo's advertising revenue. Yahoo should abandon these changes before the crucial bond of trust between it and its users is damaged beyond repair", he said.
Senior Which in-house lawyer Georgina Nelson, meanwhile, said that the obligation to notify those who email you that their message will be scanned is nonsensical and unrealistic.
"When exactly are you supposed to do this? Yahoo says people will receive a pop-up asking them to agree to the new terms and conditions", she says in the feature.
"Users who choose to accept the new terms will allow Yahoo's computer systems to identify words, links, people and subjects from their email, so that it can deliver exciting new product features such as in-line photo viewing", she noted.
Nelson goes on to say that the updated T&Cs say: "In time, we will also serve relevant ads."
"The company says users can opt out of internet-based ads by going to http://info.yahoo.com/privacy/uk/yahoo/", she adds.