Certainly, this is an issue with permissions. I took following steps and it worked for me.
- select your website or application in left corner. In most cases it would be under Default web site.
- click on Basic settings on right corner in IIS Manager 7 or above.
- click connect as button.
- Use "Specific User", Click on set button.
- Enter your username and password. like Domain\username. for me it was likeABC\rrajkumar, enter password.
- restart IIS, browse your website. It should work now.