But Sharman Networks, which owns Kazaa, said they had complied with the order by preventing people in Australia downloading the latest version of the popular software.
"We have complied with the order," said Sharman spokeswoman Julie Fenwick. "We have closed down access to getting the current version in Australia ... if a user already has it on his computer, he will see warnings."
The moves were the latest in a long-running legal battle by the Australian record industry to shut down Kazaa, which it accuses of music piracy on a massive scale.
Industry lawyers claim Kazaa users download up to 3 billion files each month, freely exchanging songs, music and television programs without paying royalties to the copyright owners.
Federal Court judge Murray Wilcox last week gave Sharman until Tuesday to develop a new version of its Kazaa Media Desktop software with a filtering system built in which was to include 3,000 so-called keywords, most likely the names of popular recording artists.
Any searches containing those keywords would be blocked by the filter, in a move aimed at stopping their copyrighted material being swapped by Kazaa users. Wilcox also told Sharman to use dialogue boxes to urge Kazaa users to download the new software.
Instead, when users log onto the www.Kazaa.com site in Australia, they are greeted by a page carrying a warning in red letters which says: "The download of the Kazaa Media Desktop by users in Australia is not permitted."
Australian users who try to download the software are prohibited from doing so.
In a statement, Stephen Peach, chief executive of ARIA, the Australian recording industry association, slammed the move.
"Sharman has thumbed its nose at the court. They were given a chance to do the right thing and they've ruined it," Peach said in a statement. "They cannot be trusted to even take the simplest steps towards complying with the court's orders and again have shown they intend to do nothing about the illegal activities occurring on a massive scale on their system."
Record company lawyers now are expected to return to court to claim Sharman is breaching the order and to demand action.
"It is apparent that they never had any intention of applying filters, the bare minimum they needed to continue to operate the system," Peach added. "Their response is an insult to the Court, the public and all artists whose work is being illegally traded on the system."
But Sharman insisted it was taking steps necessary to meet the court's orders to prevent Kazaa users breaching copyright.
"The judgment pertained to authorization of copyright in Australia," Sharman said in a statement. "All activity that could be deemed as authorizing has stopped so as to comply with the Court orders, pending the imminent appeal in February."