The company said a "small percentage" of players had been affected, although some have speculated it could be between 60,000 and one million of the 20 million players worldwide.
The users affected are those that have tweaked their console with extra chips or hard drives, not only so they can play pirated games but also games purchased in other regions than where their console was purchased.
Microsoft said the move was "in line with [its] commitment to combat piracy and support safer and more secure gameplay". The company has been checking the machines of its online community once a year since 2002.
Any machine that is banned because it has been 'modded' is unable to rejoin the Xbox Live community in the future.
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See also: UK Xbox Live users left in limbo