An apparatus and method are described for retaining system state of an online application such as a video game. For example, a method according to one embodiment comprises: executing a application on a server in response to user input from a client; transmitting video generated by the application over a network connection from the server to the client; detecting that the network connection has become unusable or impaired; responsively pausing the execution of the application from a current point of execution; and resuming the execution of the application from the current point of execution upon detecting that the network connection has become usable or unimpaired.