Products including Outlook, Copilot and Teams are among those affected by the outage, which began around 4pm GMT on Thursday (3am AEDT on Friday).
Monitoring website Downdetector said service disruptions had been reported in 74 countries and territories within about an hour.
"Outlook reports alone peaked at more than 2,000 times their normal level," it said on X.
Microsoft has struggled to fix issues with servers, initially saying some were unexpectedly unavailable.
Businesses and government agencies globally that use the popular platforms have been hampered.
In its latest update, Microsoft said it was observing partial recovery across regions where it had applied adjustments but efforts to improve serviceability were not progressing as expected.
Actions weren't resulting in sustained recovery, the company said.
"We're identifying alternate workstreams that can be applied to increase capacity in the face of sustained traffic management imbalances," it said.
At its peak, Downdetector, which tracks outages by collating status reports from a number of sources, showed more than 130,000 reports of Outlook problems in the US.
Downdetector also showed outages for several Microsoft services in the Asia-Pacific region, including Australia, India and Japan.
Australia's spy agency and federal police were among organisations caught up in the problem.
In New Zealand, government organisations and businesses affected by the Microsoft outage reverted to manual methods of working.
Immigration New Zealand said it had paused the processing of all visa applications.
In Canada, Unity Health Toronto declared a "code grey" - which is called when there is a loss or failure of infrastructure - saying its email system was down, but patient and resident care was not affected.
Australian Cyber Security Minister Tony Burke told reporters Microsoft believed it was not dealing with a cyberattack but rather an update that had "gone awry", similar to the 2024 CrowdStrike outage.
That was one of the largest internet disruptions, hobbling technology systems in hospitals, banks and airports, highlighting the vulnerability of the world's interconnected technologies.
OpenAI and Anthropic reported being affected, while electric truck maker Workhorse Group bumped its third-quarter results by four days.
In a service health notice, Microsoft said features of Microsoft 365 services that depended on Exchange Online - the company's cloud-based messaging platform that delivers email, calendar, contacts and tasks - were affected.
"As capacity is restored, users may experience a gradual recovery," Microsoft said.
Microsoft last month reported an outage of its Azure cloud platform that affected its suite of productivity software and a range of industries worldwide.
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