One of the boys with no immune system being treated with pioneering gene therapy at Great Ormond Street has developed leukaemia, his doctors say.
Without treatment, affected children have to be kept in sterile conditions
They said they had been braced for this as cancer was an "acknowledged risk" of this treatment for X-SCID, commonly known as "boy in the bubble syndrome".
A trial in France of a similar therapy was halted in 2002 after four of eleven children developed leukaemia.
Ten children with X-SCID have so far been treated at the London hospital.
"And they have all benefited from this. We hesitate to speak of 'cure', but they are able to enjoy relatively normal lives," says Professor Bobby Gaspar, a consultant immunologist on the programme.
"All these children have a potentially fatal disease, and we have to remember that. All families were counselled as to the risks, and so far, this development has been the only negative one."
The child, who is three, was treated two years ago. He has not been named. The childhood survival rate for leukaemia is around 80%, and the boy's medical history is not thought likely to impact upon this.
X-SCID is caused by mutations in the IL2RG gene, which governs the behaviour of a protein involved in the development of a number of immune system cells.
Without the protein, the cells cannot develop normally, and are unable to protect the body.
The gene therapy works by replacing a defective gene.
Prior to treatment, the outlook for children with X-SCID who did not have a suitable bone marrow donor was bleak.
They had to live in sterile conditions or risk picking up a life-threatening infection. They often died very young.
But there had been warnings that there was a risk of cancer.
A US study last year published last year looked at the long-term effect of infecting the IL2RG gene into mice: A third of the animals developed a form of cancer, with most doing so when they were about 10 months old.
A few years previously a French trial was halted prematurely after four of 11 boys treated were diagnosed with T-Cell leukaemia.
Ten of them had been cured of their original condition. Three of those who developed leukaemia went into remission, but one died.
It is thought the implanted gene was planted next to, and switched on, an oncogene, which is a gene that causes cancer.
The UK used a slightly different vector from that in the French trial. Both now seem to pose a leukaemia risk.
Work was started on a new form of the treatment following the results of the French study.
Trials of this are due to start in the middle of next year.
The initial UK trial has already been closed, so there is at present a hiatus in which children without a suitable bone marrow donor are unable to access any form of gene therapy until next year.
"But we are confident that this new treatment will not pose the risk of leukaemia, as it does not seem to switch on the gene which causes it," says Professor Gaspar.
The Gene Therapy Advisory Committee (GTAC), a regulatory body, said that while this was a tragic case it did not have any immediate implications for the future of such treatments in general.
"In one way, this confirms that this sort of side-effect is confined to a certain group of diseases, rather than gene therapy as a whole," said Professor Martin Gore, chairman of GTAC.
"The fact is, the only leukaemias that have occurred are in these children out of the 1,300 people who have undergone gene therapy."