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Error 16389: Unable to create the file ‘New Library.library.ms’ [KB2537398]

I have a home network at home which consists of a few computers running Windows XP and Windows 7. I have some security policies applied to all the computers except the testing systems. Today when I was creating a new library for my latest project documents, I got the following error while I was logged in as a regular user on one of my computers running Windows 7:

Unable to create the file ‘New Library.library.ms’
File system error (16389).

This was weird as I had never gotten this

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