Microsoft teamed up with the FBI and Chinese authorities to help bust up a major ring of software counterfeiters operating from the city of Guangdong in southern China, Microsoft disclosed Tuesday.

The gang is allegedly responsible for manufacturing and distributing more than $2 billion in fake Microsoft software, the company said.

Microsoft said the investigation was the largest of its kind in the world, and it was led by China's Public Security Bureau and the U.S. Federal Bureau of Investigation. Microsoft and its partners and customers in China also helped out, the company said.

The counterfeiters were illegally copying and selling code and Certificates of Authenticity for a range of popular Microsoft products, including Windows Vista, Office 2007, Windows XP, and Windows Server. The fakes were distributed to locations around the world, including Los Angeles, from where they were shipped to other parts of the United States, Microsoft said.

To date, authorities have made 25 arrests in connection with the sting. "The case represents a milestone in the fight against software piracy," said Brad Smith, Microsoft's senior VP and general counsel, in a statement.

The arrests were the result of a multi-year investigation in which more than 55,000 "sophisticated" copies of the bogus software were traced back to the same southern China criminal syndicate, Microsoft said. The company said that's less than 1% of the millions of pirated software discs that the gang shipped to buyers globally.

"Countries around the world are expected to experience a significant decrease in the volume of counterfeit software as a result of this action," Microsoft officials stated.

End users helped out in the investigation by tapping the anti-piracy technology embedded in Microsoft's Windows Genuine Advantage software to identify their software as fake. More than 1,000 of them sent physical copies of Windows XP to Microsoft for inspection. With the help of authorities, the company was able to trace the pirated code back to the gang in Guangdong.

Microsoft estimates that global piracy costs the software industry about $40 billion per year in lost sales.