A security news site had reported that some hackers were offering to hack Hotmail accounts for 20 dollars.
Computer security researchers discovered the vulnerability in early April and told Microsoft about it.
The bug revolved around the way Hotmail handles the data that must pass back and forth when a user wants to reset their password, The BBC reports.
According to the report, as knowledge of the bug spread, YouTube videos highlighting how to perform the hack, also started to surface.
Microsoft has issued a statement saying the loophole has now been closed and that Hotmail account holders need take no further action.