I was configuring WCF web service today. I went to the point that I was able to access web service methods with no problem.
http://sp2013dev1:12211/PeWS/WebServices.PropertyProfilesInfoWs.svc/GetMyProperties was returning nice results set.
This was on my Windows 7 with IE 10. Some other developers were still not able to get the same results. they were getting login prompt 3 times, then the error message:
To fix this, Open IIS Management Console
1.) Select the website that causes 401 error
2.) Open the “Authentication” property under the “IIS” header
3.) Click the “Windows Authentication” item and click “Providers”
4.)Make sure that NTLM is as first option, and not Negotiate, you can move NTLM up
This was resolution in my case.