Update: Chinese team mistakenly released unpatched IE7 exploit

Chinese security researchers mistakenly released the code needed to hack a PC by exploiting an unpatched vulnerability in Microsoft's Internet Explorer 7 browser, potentially putting millions of computer users at risk -- but it appears some hackers already knew how to exploit the flaw.

At one point, the code was traded for as much as US$15,000 on the underground criminal markets, according to iDefense, the computer security branch of VeriSign, citing a blog post from the Chinese team.

[ Related: "New Web attack exploits unpatched IE flaw" | Earlier this week,Microsoft released this year's final set of patches, bringing the total for 2008 to 77 patches. Learn how to secure your systems with Roger Grimes' Security Adviser blog and newsletter, both from InfoWorld. ]

The problem in Internet Explorer 7 means a computer could be infected with malicious software merely by visiting a Web site, one of the most dangerous computer security scenarios. It affects computers running IE7 on Windows XP regardless of the service pack version, Windows Server 2003 running Service Pack 1 or 2, Windows Vista and Windows Vista with Service Pack 1 as well as Windows Server 2008.

Microsoft has acknowledged the issue but not indicated when it will release a patch.

The vulnerability was first revealed earlier this week by the Chinese security team "knownsec." Knownsec said on Tuesday they mistakenly released exploit code thinking that the problem was already patched, iDefense said.

"This is our mistake," knownsec said in a Chinese-language research note.

That mistake could mean that more hackers will try to build Web sites in order to compromise users PCs since the exploit code is more freely floating around on the Internet. However, other information indicates that hackers already knew how it worked before the release. According to knownsec, a rumor surfaced earlier in the year about a bug in Internet Explorer, iDefense wrote.

Information on the vulnerability was allegedly sold in November on the underground back market for $15,000. Earlier this month, the exploit was sold second or third hand for $650, said iDefense, citing knownsec.

Eventually, someone developed a Trojan horse program -- one that appears harmless but is actually malicious -- that is designed to steal information related to Chinese-language PC games, a popular target for hackers.

Now, other Web sites are being built that incorporate the exploit. Hackers then usually try to get people to visit those sites through spam or unsolicited instant messages. The Shadowserver Foundation has published a list of domains that are hosting the exploit and subsequent Trojan, although users are highly advised not to visit the Web sites. Most are ".cn" domains, the top-level domain for China.