"To our knowledge, this is the first report demonstrating the generation of a functional human organ from pluripotent stem cells," the researchers wrote in the journal Nature.
Malcolm Allison, a stem cell expert at Queen Mary University of London, who was not involved in the research, said the study's results offered "the distinct possibility of being able to create mini livers from the skin cells of a patient dying of liver failure" and transplant them to boost the failing organ.
Takanori Takebe, who led the study, told a teleconference he was so encouraged by the success of this work that he plans similar research on other organs such as the pancreas and lungs.
A team of American researchers said in April they had created a rat kidney in a lab that was able to function like a natural one, but their method used a "scaffold" structure from a kidney to build a new organ.
And in May last year, British researchers said they had turned skin cells into beating heart tissue that might one day be able to be used to treat heart failure.
That livers and other organs may one day be made from iPS cells is an "exciting" prospect, said Matthew Smalley of Cardiff University's European Cancer Stem Cell Research Institute.
"(This) study holds out real promise for a viable alternative approach to human organ transplants," he said.
Chris Mason, a regenerative medicine expert at University College London said the greatest impact of iPS cell-liver buds might be in their use in improving drug development.
"Presently to study the metabolism and toxicology of potential new drugs, human cadaveric liver cells are used, " he said. "Unfortunately these are only available in very limited quantities".
The suggestion from this new study is that mice transplanted with human iPS cell-liver buds might be used to test new drugs to see how the human liver would cope with them and whether they might have side-effects such as liver toxicity.
(This story refiles to fix a typo in the name "Yokohama" in the eighth paragraph)
(Reporting by Kate Kelland; Editing by Janet Lawrence)
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