Adeno-associated virus (AAV) is a promising gene transfer vector tested in both animal studies and human clinical trials. However, current production methods are generally inefficient and require improvements to meet the increasing clinical need for economical, high titer and high quality rAAV vectors. The inefficiency of the current systems largely arises from the AAV helper function, which contains only the AAV coding region but lacks inverted terminal repeats. The terminal repeats were originally removed to prevent replication competent AAV contamination. Here we designed a novel and highly efficient rAAV helper function containing AAV terminal repeats. The new helper function not only mimics the wild-type AAV growth as it replicates along with the vector plasmid, but also restores the cis regulating function of the AAV terminal repeats. Addition of heterologous introns to the helper genome and use of a mutant AAV terminal repeat defective in packaging effectively controls the contamination of replication competent AAV particles. This new strategy also performs better in AAV producing cell lines than those based on non-replicating AAV rep and cap genome.