A recently introduced formulation of time dependent linear response density functional theory within the plane-wave pseudopotential framework [J. Hutter, J. Chem. Phys. 118, 3928 (2003)] is applied to the study of solvent shift and intensity enhancement effects of the (1)A(2) n-->pi* electronic transition in acetone, treating solute and solvent at the same level of theory. We propose a suitable formalism for computing transition intensities based on the modern theory of polarization, which is applicable to condensed-phase and finite systems alike. The gain in intensity brought about by thermal fluctuations is studied in molecular acetone at room temperature, and in gas-phase (CH3)(2)CO.(H2O)(2) at 25 K. The latter system is characterized by the appearance of relatively intense features in the low-energy region of the spectrum, attributable to spurious solvent-->solute charge-transfer excitations created by deficiencies in the DFT methodology. The n-->pi* transition can be partially isolated from the charge-transfer bands, yielding a blueshift of 0.17 eV with respect to gas-phase acetone. This analysis is then carried over to a solution of acetone in water, where further complications are encountered in the from of a solute-->solvent charge transfer excitations overlapping with the n-->pi* band. The optically active occupied states are found to be largely localized on either solute or solvent, and using this feature we were again able to isolate the physical n-->pi* band and compute the solvatochromic shift. The result of 0.19 eV is in good agreement with experiment, as is the general increase in the mean oscillator strength of the transition. The unphysical charge transfers are interpreted in terms of degeneracies in the spectrum of orbital energies of the aqueous acetone solution. (C) 2003 American Institute of Physics.