Is it polite reply for email?
Dear xxx, Thank you for your prompt reply. Best regards, xxx
Or is it too short?
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It depends on the situation, of course. Some folks get swamped with email, contending with more than 40 or 50 messages in a single day. If the recipient is a busy person, sometimes it's best not to clutter their inbox.
If the situation warrants an acknowledgment, however, yours is fine, although I might suggest:
Thank you for replying so promptly.
This is minor and subtle, but I think my version is thanking the person for their promptness, while yours is thanking them for their reply. They already know they've replied, so I think my wording has a little more value to the recipient – but that's a debatable point, given that the wordings are so similar.
It's certainly not "too short" in many situations. Most people do not even acknowledge the receipt of an email in this way.
Actually sending a short thank you is something that more people should do.
However it might be too short, if the prompt reply you got was something in which the writer has obviously invested a lot of time: if you ask a short question and you get back a 5 page detailed response with sources and attachments, I would suggest you reply with a bit longer "thank you"-mail, acknowledging that effort.
If it was a short answer to a simple question, this is fine. I once got very friendly with a sysadmin because I was the only one that said thank you. Emails went like this:
Hi X. Could you please install YY and ZZ on AA?
So, it can always be shorter :)