The five-minute film appeared on YouTube last August and prompted a complaint from the parent of a 12-year-old, who said their child had become distressed after watching it.
The ad featured Jackson, Three’s purple puppet mascot, in a car with a human companion, Steve, driving into the woods to "test to the new LG G4" handset.
The pair experienced mysterious events, such as a doll that jumped at the car window, a dark figure by a campfire, and a child with black gunge drooling from her mouth, who scuttled across a ceiling.
When contacted by the ASA, Three owner Hutchison 3G UK said it voluntarily sought a classification for the ad from the British Board of Film Classification so unsupervised children would not be able to see it if parents used internet browsing filters.
The ad included a warning at the start of the video, which stated: "WARNING. The following film contains scenes of a disturbing nature. Viewer discretion is advised. Restricted. Suitable for viewers aged 15 and over", followed by the 15 rating film classification logo.
Three said the ad did not include any violent scenes or explicit "on-screen" horror.
But in its ruling, published this morning, the ASA said there could be a risk that younger viewers would continue to watch the ad regardless of the warning.
The ASA ruled: "We considered the ad’s prolonged and heightened sense of suspense was likely to cause undue fear and distress to children. We concluded the combination of the ad’s content, and the possibility that the warning would be ignored, meant that [it] was likely to cause distress to those younger viewers who saw it."
It would have been possible for Three to limit the targeting of the ad so it was only served to YouTube users who were signed into accounts that declared they were over 15 years old, the ASA added.
The ASA told Three to ensure that future ads which were unsuitable for viewing by children were appropriately targeted.
A Three spokesman said: "We are sorry that the ASA was freaked out by our spoof horror YouTube advert.
"However, we are pleased that the ASA agreed that we took a number of steps including consulting industry experts to ensure that the advertisement would only be viewed by an appropriate audience. We will take their comments on board for any future campaigns."