Researchers working for Independent Security Evaluators were able to take control of the iPhone using a Wi-Fi connection and by tricking the users into visiting a website that contained malicious code.
The proof of concept virus - if propagated - could enable hackers to read your SMS messages, address book, voicemail and call history logs then send the hacked information back to a malicious website.
However Charles A Miller, principal analyst at Independent Security Evaluators also praised the iPhone's security features and said the flaw had already been reported to Apple so it could work on a patch.
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Commenting on the breach, Steven M Bellovin, a computer science professor at Columbia University said:
"This looks like a genuine hack. We've been hearing for a few years now that viruses and worms were going to be a problem on cellphones as they became a little more powerful, and we're there." Bellovin also said that the iPhone was effectively a computer and that "it's got computer-grade problems."
Full details of the exploit will be revealed at the Black Hat hackers conference next month.