We have previously described a mutant hepatitis B virus (HBV) with a fused X-C open reading frame (ORF) resulting from a single nucleotide insertion in the X-C overlapping region. A stably transformed cell line producing HBV particles, HepG2-K8, was established by transfecting the human hepatoma cell line HepG2 with a plasmid carrying four tandem repeats of the mutant HBV genome. The virus particles secreted into the culture medium were characterized by density gradient centrifugation and electron microscopy. The particles, similar to Dane particles by morphology and density, contained the mature HBV genome and endogenous DNA polymerase activity. Six HBV-specific transcripts of 4.0, 3.5, 2.2, 2.1, 1.2 and 0.9 kb were detected in HepG2-K8 cells by Northern blot analysis. cDNA cloning and sequence analysis of X mRNA showed that an elongated X ORF encoding 193 amino acids was created by a frameshift mutation in the 3'-terminal region of the wild-type X ORF and that the formation of an in-frame termination codon (TAA) resulted from polyadenylation. This elongated X gene product exerted transcriptional trans-activation.