diff --git a/apps/api/v1/pages/api/users/_post.ts b/apps/api/v1/pages/api/users/_post.ts
index 8331005acd1eb2..80fa92e2452081 100644
--- a/apps/api/v1/pages/api/users/_post.ts
+++ b/apps/api/v1/pages/api/users/_post.ts
@@ -2,7 +2,7 @@ import type { NextApiRequest } from "next";
 
 import { HttpError } from "@calcom/lib/http-error";
 import { defaultResponder } from "@calcom/lib/server";
-import prisma from "@calcom/prisma";
+import { UserCreationService } from "@calcom/lib/server/service/userCreationService";
 import { CreationSource } from "@calcom/prisma/enums";
 
 import { schemaUserCreateBodyParams } from "~/lib/validations/user";
@@ -93,7 +93,9 @@ async function postHandler(req: NextApiRequest) {
   // If user is not ADMIN, return unauthorized.
   if (!isSystemWideAdmin) throw new HttpError({ statusCode: 401, message: "You are not authorized" });
   const data = await schemaUserCreateBodyParams.parseAsync(req.body);
-  const user = await prisma.user.create({ data: { ...data, creationSource: CreationSource.API_V1 } });
+  const user = await UserCreationService.createUser({
+    data: { ...data, creationSource: CreationSource.API_V1 },
+  });
   req.statusCode = 201;
   return { user };
 }
diff --git a/apps/api/v1/test/lib/users/_post.test.ts b/apps/api/v1/test/lib/users/_post.test.ts
new file mode 100644
index 00000000000000..7aabe2fd03e85d
--- /dev/null
+++ b/apps/api/v1/test/lib/users/_post.test.ts
@@ -0,0 +1,134 @@
+import prismock from "../../../../../../tests/libs/__mocks__/prisma";
+
+import type { Request, Response } from "express";
+import type { NextApiRequest, NextApiResponse } from "next";
+import { createMocks } from "node-mocks-http";
+import { describe, test, expect, vi } from "vitest";
+
+import handler from "../../../pages/api/users/_post";
+
+type CustomNextApiRequest = NextApiRequest & Request;
+type CustomNextApiResponse = NextApiResponse & Response;
+
+vi.mock("@calcom/lib/server/i18n", () => {
+  return {
+    getTranslation: (key: string) => {
+      return () => key;
+    },
+  };
+});
+
+vi.stubEnv("CALCOM_LICENSE_KEY", undefined);
+
+describe("POST /api/users", () => {
+  test("should throw 401 if not system-wide admin", async () => {
+    const { req, res } = createMocks<CustomNextApiRequest, CustomNextApiResponse>({
+      method: "POST",
+      body: {
+        email: "test@example.com",
+        username: "test",
+      },
+    });
+    req.isSystemWideAdmin = false;
+
+    await handler(req, res);
+
+    expect(res.statusCode).toBe(401);
+  });
+  test("should throw a 400 if no email is provided", async () => {
+    const { req, res } = createMocks<CustomNextApiRequest, CustomNextApiResponse>({
+      method: "POST",
+      body: {
+        username: "test",
+      },
+    });
+    req.isSystemWideAdmin = true;
+
+    await handler(req, res);
+
+    expect(res.statusCode).toBe(400);
+  });
+  test("should throw a 400 if no username is provided", async () => {
+    const { req, res } = createMocks<CustomNextApiRequest, CustomNextApiResponse>({
+      method: "POST",
+      body: {
+        email: "test@example.com",
+      },
+    });
+    req.isSystemWideAdmin = true;
+
+    await handler(req, res);
+
+    expect(res.statusCode).toBe(400);
+  });
+  test("should create user successfully", async () => {
+    const { req, res } = createMocks<CustomNextApiRequest, CustomNextApiResponse>({
+      method: "POST",
+      body: {
+        email: "test@example.com",
+        username: "test",
+      },
+      prisma: prismock,
+    });
+    req.isSystemWideAdmin = true;
+
+    await handler(req, res);
+
+    expect(res.statusCode).toBe(200);
+
+    const userQuery = await prismock.user.findFirst({
+      where: {
+        email: "test@example.com",
+      },
+    });
+
+    expect(userQuery).toEqual(
+      expect.objectContaining({
+        email: "test@example.com",
+        username: "test",
+        locked: false,
+        organizationId: null,
+      })
+    );
+  });
+
+  test("should auto lock user if email is in watchlist", async () => {
+    const { req, res } = createMocks<CustomNextApiRequest, CustomNextApiResponse>({
+      method: "POST",
+      body: {
+        email: "test@example.com",
+        username: "test",
+      },
+      prisma: prismock,
+    });
+    req.isSystemWideAdmin = true;
+
+    await prismock.watchlist.create({
+      data: {
+        type: "EMAIL",
+        value: "test@example.com",
+        severity: "CRITICAL",
+        createdById: 1,
+      },
+    });
+
+    await handler(req, res);
+
+    expect(res.statusCode).toBe(200);
+
+    const userQuery = await prismock.user.findFirst({
+      where: {
+        email: "test@example.com",
+      },
+    });
+
+    expect(userQuery).toEqual(
+      expect.objectContaining({
+        email: "test@example.com",
+        username: "test",
+        locked: true,
+        organizationId: null,
+      })
+    );
+  });
+});
diff --git a/packages/lib/server/repository/organization.ts b/packages/lib/server/repository/organization.ts
index 752e19b1f16cb7..809c91df00eb3f 100644
--- a/packages/lib/server/repository/organization.ts
+++ b/packages/lib/server/repository/organization.ts
@@ -90,6 +90,7 @@ export class OrganizationRepository {
       email: owner.email,
       username: ownerUsernameInOrg,
       organizationId: organization.id,
+      locked: false,
       creationSource,
     });
 
diff --git a/packages/lib/server/repository/user.test.ts b/packages/lib/server/repository/user.test.ts
new file mode 100644
index 00000000000000..78886a2819fd05
--- /dev/null
+++ b/packages/lib/server/repository/user.test.ts
@@ -0,0 +1,110 @@
+// eslint-disable-next-line @typescript-eslint/no-unused-vars
+import prismock from "../../../../tests/libs/__mocks__/prisma";
+
+import { describe, test, vi, expect, beforeEach } from "vitest";
+
+import { CreationSource } from "@calcom/prisma/enums";
+
+import { UserRepository } from "./user";
+
+vi.mock("@calcom/lib/server/i18n", () => {
+  return {
+    getTranslation: (key: string) => {
+      return () => key;
+    },
+  };
+});
+
+describe("UserRepository", () => {
+  beforeEach(() => {
+    prismock;
+  });
+
+  describe("create", () => {
+    test("Should create a user without a password", async () => {
+      const user = await UserRepository.create({
+        username: "test",
+        email: "test@example.com",
+        organizationId: null,
+        creationSource: CreationSource.WEBAPP,
+        locked: false,
+      });
+
+      expect(user).toEqual(
+        expect.objectContaining({
+          username: "test",
+          email: "test@example.com",
+          organizationId: null,
+          creationSource: CreationSource.WEBAPP,
+          locked: false,
+        })
+      );
+
+      const password = await prismock.userPassword.findUnique({
+        where: {
+          userId: user.id,
+        },
+      });
+
+      expect(password).toBeNull();
+    });
+
+    test("If locked param is passed, user should be locked", async () => {
+      const user = await UserRepository.create({
+        username: "test",
+        email: "test@example.com",
+        organizationId: null,
+        creationSource: CreationSource.WEBAPP,
+        locked: true,
+      });
+
+      const userQuery = await prismock.user.findUnique({
+        where: {
+          email: "test@example.com",
+        },
+        select: {
+          locked: true,
+        },
+      });
+
+      expect(userQuery).toEqual(
+        expect.objectContaining({
+          locked: true,
+        })
+      );
+    });
+
+    test("If organizationId is passed, user should be associated with the organization", async () => {
+      const organizationId = 123;
+      const username = "test";
+
+      const user = await UserRepository.create({
+        username,
+        email: "test@example.com",
+        organizationId,
+        creationSource: CreationSource.WEBAPP,
+        locked: true,
+      });
+
+      expect(user).toEqual(
+        expect.objectContaining({
+          organizationId,
+        })
+      );
+
+      const profile = await prismock.profile.findFirst({
+        where: {
+          organizationId,
+          username,
+        },
+      });
+
+      expect(profile).toEqual(
+        expect.objectContaining({
+          organizationId,
+          username,
+        })
+      );
+    });
+  });
+});
diff --git a/packages/lib/server/repository/user.ts b/packages/lib/server/repository/user.ts
index 0449d05f2d1e6c..09d77ccee652bf 100644
--- a/packages/lib/server/repository/user.ts
+++ b/packages/lib/server/repository/user.ts
@@ -1,7 +1,4 @@
-import { createHash } from "crypto";
-
 import { whereClauseForOrgWithSlugOrRequestedSlug } from "@calcom/ee/organizations/lib/orgDomains";
-import { hashPassword } from "@calcom/features/auth/lib/hashPassword";
 import logger from "@calcom/lib/logger";
 import { safeStringify } from "@calcom/lib/safeStringify";
 import { getTranslation } from "@calcom/lib/server/i18n";
@@ -16,7 +13,6 @@ import { userMetadata } from "@calcom/prisma/zod-utils";
 import type { UpId, UserProfile } from "@calcom/types/UserProfile";
 
 import { DEFAULT_SCHEDULE, getAvailabilityFromSchedule } from "../../availability";
-import slugify from "../../slugify";
 import { ProfileRepository } from "./profile";
 import { getParsedTeam } from "./teamUtils";
 
@@ -581,28 +577,27 @@ export class UserRepository {
     });
   }
 
-  static async create({
-    email,
-    username,
-    organizationId,
-    creationSource,
-  }: {
-    email: string;
-    username: string;
-    organizationId: number | null;
-    creationSource: CreationSource;
-  }) {
-    console.log("create user", { email, username, organizationId });
-    const password = createHash("md5").update(`${email}${process.env.CALENDSO_ENCRYPTION_KEY}`).digest("hex");
-    const hashedPassword = await hashPassword(password);
+  static async create(
+    data: Omit<Prisma.UserCreateInput, "password" | "organization" | "movedToProfile"> & {
+      username: string;
+      hashedPassword?: string;
+      organizationId: number | null;
+      creationSource: CreationSource;
+      locked: boolean;
+    }
+  ) {
+    const organizationIdValue = data.organizationId;
+    const { email, username, creationSource, locked, ...rest } = data;
+
+    logger.info("create user", { email, username, organizationIdValue, locked });
     const t = await getTranslation("en", "common");
     const availability = getAvailabilityFromSchedule(DEFAULT_SCHEDULE);
 
-    return await prisma.user.create({
+    const user = await prisma.user.create({
       data: {
-        username: slugify(username),
+        username,
         email: email,
-        password: { create: { hash: hashedPassword } },
+        ...(data.hashedPassword && { password: { create: { hash: data.hashedPassword } } }),
         // Default schedule
         schedules: {
           create: {
@@ -618,19 +613,25 @@ export class UserRepository {
             },
           },
         },
-        organizationId: organizationId,
-        profiles: organizationId
+        creationSource,
+        locked,
+        ...(organizationIdValue
           ? {
-              create: {
-                username: slugify(username),
-                organizationId: organizationId,
-                uid: ProfileRepository.generateProfileUid(),
+              organizationId: organizationIdValue,
+              profiles: {
+                create: {
+                  username,
+                  organizationId: organizationIdValue,
+                  uid: ProfileRepository.generateProfileUid(),
+                },
               },
             }
-          : undefined,
-        creationSource,
+          : {}),
+        ...rest,
       },
     });
+
+    return user;
   }
   static async getUserAdminTeams(userId: number) {
     return prisma.user.findFirst({
diff --git a/packages/lib/server/service/userCreationService.test.ts b/packages/lib/server/service/userCreationService.test.ts
new file mode 100644
index 00000000000000..39e35fe1de3d8f
--- /dev/null
+++ b/packages/lib/server/service/userCreationService.test.ts
@@ -0,0 +1,101 @@
+import prismock from "../../../../tests/libs/__mocks__/prisma";
+
+import { describe, test, expect, vi, beforeEach } from "vitest";
+
+import { hashPassword } from "@calcom/features/auth/lib/hashPassword";
+import { checkIfEmailIsBlockedInWatchlistController } from "@calcom/features/watchlist/operations/check-if-email-in-watchlist.controller";
+import { CreationSource } from "@calcom/prisma/enums";
+
+import { UserRepository } from "../repository/user";
+import { UserCreationService } from "./userCreationService";
+
+vi.mock("@calcom/lib/server/i18n", () => {
+  return {
+    getTranslation: (key: string) => {
+      return () => key;
+    },
+  };
+});
+
+vi.mock("@calcom/features/auth/lib/hashPassword", () => ({
+  hashPassword: vi.fn().mockResolvedValue("hashed-password"),
+}));
+
+vi.mock("../repository/user", async () => {
+  return {
+    UserRepository: {
+      create: vi.fn(),
+    },
+  };
+});
+
+vi.mock("@calcom/features/watchlist/operations/check-if-email-in-watchlist.controller", (async) => ({
+  checkIfEmailIsBlockedInWatchlistController: vi.fn(() => false),
+}));
+
+const mockUserData = {
+  email: "test@example.com",
+  username: "test",
+  creationSource: CreationSource.WEBAPP,
+};
+
+vi.stubEnv("CALCOM_LICENSE_KEY", undefined);
+
+describe("UserCreationService", () => {
+  beforeEach(() => {
+    prismock;
+    vi.clearAllMocks();
+  });
+
+  test("should create user", async () => {
+    vi.spyOn(UserRepository, "create").mockResolvedValue({
+      username: "test",
+      locked: false,
+      organizationId: null,
+    } as any);
+
+    const user = await UserCreationService.createUser({ data: mockUserData });
+
+    expect(UserRepository.create).toHaveBeenCalledWith(
+      expect.objectContaining({
+        username: "test",
+        locked: false,
+        organizationId: null,
+      })
+    );
+
+    expect(user).not.toHaveProperty("locked");
+  });
+
+  test("should lock user when email is in watchlist", async () => {
+    vi.mocked(checkIfEmailIsBlockedInWatchlistController).mockResolvedValue(true);
+
+    const user = await UserCreationService.createUser({ data: mockUserData });
+
+    expect(UserRepository.create).toHaveBeenCalledWith(
+      expect.objectContaining({
+        locked: true,
+      })
+    );
+
+    expect(user).not.toHaveProperty("locked");
+  });
+
+  test("should hash password when provided", async () => {
+    const mockPassword = "password";
+    vi.mocked(hashPassword).mockResolvedValue("hashed_password");
+
+    const user = await UserCreationService.createUser({
+      data: { ...mockUserData, password: mockPassword },
+    });
+
+    expect(hashPassword).toHaveBeenCalledWith(mockPassword);
+    expect(UserRepository.create).toHaveBeenCalledWith(
+      expect.objectContaining({
+        hashedPassword: "hashed_password",
+      })
+    );
+
+    expect(user).not.toHaveProperty("locked");
+  });
+});
diff --git a/packages/lib/server/service/userCreationService.ts b/packages/lib/server/service/userCreationService.ts
new file mode 100644
index 00000000000000..5056965348511d
--- /dev/null
+++ b/packages/lib/server/service/userCreationService.ts
@@ -0,0 +1,54 @@
+import { hashPassword } from "@calcom/features/auth/lib/hashPassword";
+import { checkIfEmailIsBlockedInWatchlistController } from "@calcom/features/watchlist/operations/check-if-email-in-watchlist.controller";
+import logger from "@calcom/lib/logger";
+import type { CreationSource, UserPermissionRole, IdentityProvider } from "@calcom/prisma/enums";
+
+import slugify from "../../slugify";
+import { UserRepository } from "../repository/user";
+
+interface CreateUserInput {
+  email: string;
+  username: string;
+  name?: string | null;
+  password?: string;
+  brandColor?: string;
+  darkBrandColor?: string;
+  hideBranding?: boolean;
+  weekStart?: string;
+  timeZone?: string;
+  theme?: string | null;
+  timeFormat?: number;
+  locale?: string;
+  avatar?: string;
+  organizationId?: number | null;
+  creationSource: CreationSource;
+  role?: UserPermissionRole;
+  emailVerified?: Date;
+  identityProvider?: IdentityProvider;
+}
+
+const log = logger.getSubLogger({ prefix: ["[userCreationService]"] });
+
+export class UserCreationService {
+  static async createUser({ data }: { data: CreateUserInput }) {
+    const { email, password, username } = data;
+
+    const shouldLockByDefault = await checkIfEmailIsBlockedInWatchlistController(email);
+
+    const hashedPassword = password ? await hashPassword(password) : null;
+
+    const user = await UserRepository.create({
+      ...data,
+      username: slugify(username),
+      ...(hashedPassword && { hashedPassword }),
+      organizationId: data?.organizationId ?? null,
+      locked: shouldLockByDefault,
+    });
+
+    log.info(`Created user: ${user.id} with locked status of ${user.locked}`);
+
+    const { locked, ...rest } = user;
+
+    return rest;
+  }
+}