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The London Internet Exchange (Linx), which represents the UK's biggest ISPs, said service providers were already working with the government to minimise the risks posed by spammers and paedophiles operating in chatrooms.
Malcolm Hutty, regulation officer at Linx, called for a balanced approach to internet safety, with ISPs working closely with law enforcement agencies to protect children, while maintaining freedom to access the internet.
Security experts said the technology already existed to identify and automatically monitor postings from high-risk individuals.
"We simply cannot keep removing ever larger parts of the internet to try and remove the risk," said Peter Dorrington, head of fraud at software supplier SAS.
Speaking at his party's annual conference in Brighton last week, Liberal Democrat MP Paul Burstow, a member of the Home Office's internet child protection taskforce, said, "There is a risk that children will switch to chatrooms that are even less safe. Rather than baling out, Microsoft should be taking steps to ensure chat is safe."
However, Matt Whittingham, head of customer satisfaction at MSN, said the company had no choice but to remove the service. "Yes, there have been improvements, and moderated chat is safer, but there is no foolproof way of making it 100% safe," he said.