Software firm, BitArt labs, has slammed anti-piracy features incorporated in Windows XP, claiming the software was cracked within hours of the product's launch last Thursday.

BitArts' security expert John Safa said a 4KB crack file is freely available from online hacker or Warez pirate software sites. The download supposedly allows people to completely bypass the registration and activation process needed to use XP.

But Microsoft denies the allegations, saying that the hooky software doing the rounds are copies of corporate, site-wide licence editions.

"There are no cracked copies out there and we are not aware of any so-called cracks in XP," said Duncan Reid, security expert at Microsoft. "What's available are purposely pirated copies created from leaked corporate volume licensing keys. They have not been generated from product cracks."

But while Microsoft defends its product, Safa thinks it needs to admit XP's flaws and "start working on a patch" if it wants to protect the software.

Another potential problem for the software giant is that people do not have to activate their product for 30 days after installation, giving them plenty of time to download a 'fix' to bypass the product activation process.

Almost half of UK PC owners have an internet connection, and thanks to Microsoft they can register their product online, making it easy to use the cracked code.

BitArt agreed with the activation process but felt Microsoft's approach to it was wrong. Safa feels Microsoft has underestimated hackers. "We tried to tell them that hackers were far cleverer than they had given them credit for."

But Microsoft's Reid insisted the activation process had not been cracked and stressed that activation was never intended to prevent fraudulent pirating only casual copying — that is, transferring the software to several machines. He believes activation has achieved this despite BitArt's claims to the contrary.

XP's price tag was also blamed for encouraging piracy. With a full copy of XP retailing at nearly £180, Safa felt that people just weren't willing to shell out this much cash.

Reid disagreed. "We have been delighted by initial sales figures for XP. The price isn't putting people off."

Microsoft touted Product Activation as one of its key efforts to protect against "casual copying", which is when a user buys one copy of Windows and installs it on multiple computers. This type of software piracy contributed to about half of the estimated £8.226bn lost last year to the sale of counterfeit software, industry groups have said.

It was never going to stop copying of any greater intent or effort, something which Microsoft has had to grudgingly admit.