A spokesperson for Ninemsn, the Microsoft joint venture responsible for Hotmail in Australia, said it was not known how many, if any, Australian Hotmail customers were affected by the security loophole.
Hotmail boasts a worldwide customer base of more than 52 million users, 2 million of whom are registered in Australia. Roughly 10 per cent of Australia's population uses Hotmail and were previously vulnerable to hack attacks.
The security loophole was exploited by sending a Hotmail user an email message that contained a particular HTML (Hypertext Markup Language) attachment.
When the user opened the attached file, a program was launched which intercepted their Hotmail cookie and emailed it back to the hacker.
Microsoft said Hotmail was taken offline for "less than an hour" while the software giant "quickly implemented a fix on all the Hotmail servers".
It is believed that Microsoft discovered the security loophole after the hacker published details of the cyber-oversight online.