Netscape acknowledged the vulnerability and said its engineers are working to fix the problem.
"We expect to have a resolution in the near future," said Andrew Weinstein, spokesperson for AOL Time Warner, the parent company of Netscape.
The vulnerability affects the XMLHttpRequest component of both Navigator and Mozilla, which is used primarily to retrieve XML (Extensible Markup Language) documents from Web servers, GreyMagic said.
An attacker could exploit the vulnerability by sending the Web browsers to a Web site that included hostile code, which would then allow the attacker to view documents on a user's hard drive, the group said.
Microsoft's Internet Explorer browser was also vulnerable to a less serious version of the same attack, which Microsoft patched in February.
The Navigator and Mozilla vulnerability affects Netscape versions 6.1 and above, and version 0.9.7 to 0.9.9 of Mozilla.
The scope of the vulnerability is likely to be limited by the number of users who run either Netscape or Mozilla.
Netscape holds about 7% of the worldwide market for Web browsers, according to research firm WebSideStory. Mozilla, an open-source Web browser whose first final version has yet to be released, commands a smaller market share.
Mozilla was created after Netscape made its source code available to developers in 1998. AOL uses much of the same code that powers Mozilla in Navigator.
GreyMagic's warning also carried harsh words for Netscape which, GreyMagic says, reneged on a pledge to give $1,000 per serious bug discovered by researchers.
GreyMagic said that Netscape had ignored an e-mail sent by the group detailing this vulnerability and that in the future, GreyMagic would release any bugs it finds in Netscape without contacting the company and would recommend against the use of its browser.
Weinstein said that Netscape did acknowledge GreyMagic's e-mail, but that the group submitted its report on last Wednesday and only waited until Monday to release the report publically.
"Our bug bounty program remains robust and we encourage anyone who discovers [a bug] to bring it to our attention," he said.