A strain of MRSA that has never previously caused deaths in hospitals has killed two people, according to the Health Protection Agency (HPA).
MRSA is linked to over 1,000 deaths a year
After a healthcare worker died in September, it emerged that a form of Panton-Valentine Leukocidin (PVL) MRSA had also claimed a patient's life.
The strain attacks white blood cells and sufferers cannot fight infection.
Nine others also contracted the strain in the outbreak at University Hospital of North Staffordshire, Stoke-on-Trent.
Of these, only one was a patient.
In a statement the hospital said: "With the exception of one infection it is not clear at this stage whether transmission has occurred within the hospital or, as is more common, in the community which it serves.
"The hospital is continuing to take advice from the Health Protection Agency on management of the outbreak."
Hospital-associated strains of MRSA normally affect more elderly hospitalised patients.
But the PVL strain is unusual because it can affect young and otherwise healthy people.
In the outbreak in Staffordshire, the first person - Case A - who died was a healthcare worker who developed MRSA, and was being treated as a patient at the hospital.
The second fatality was a patient being who was being treated on the ward where Case A had worked.
The HPA said there have been other cases of this particular strain of PVL MRSA in England and Wales - but these have been in the community, not hospitals.
Thirteen cases were recorded in the community in 2005. All were skin and soft-tissue infections.
There have also been five deaths linked to PVL MRSA in the UK over the last two years - but these were other strains of the bug.
Marine Richard Campbell-Smith, 18, cut a leg in training and died after becoming infected with a form of PVL in 2004.
A 28-year-old woman also died from a form of the infection after picking up the bug in her local gym.
In a statement, the HPA said: "PVL-producing strains of MRSA have been seen in the UK before - however, the small numbers of cases reported have usually been in the community rather than a hospital setting.
"This outbreak is the first time transmission and deaths due to this strain are known to have occurred in a healthcare setting in England and Wales."
The agency identified those affected as being "among individuals in a hospital and their close household contacts in the West Midlands".
The agency only covers England and Wales.
Dr Angela Kearns, an MRSA expert with the HPA, said: "When people contract PVL-producing strains of MRSA, they usually experience a skin infection such as a boil or abscess.
"Most infections can be treated successfully with everyday antibiotics but occasionally a more severe infection may occur.
"The HPA is advising the hospital on outbreak control measures, and will continue to monitor MRSA infection nationally."
The PVL toxin is carried by less than 2% of the bacteria responsible for MRSA.
Although, it normally causes pus-producing skin infections, such as abscesses or boils, it can trigger more severe invasive infections such as septic arthritis, blood poisoning or a form of pneumonia.
Shadow health secretary, Andrew Lansley, said: "Over the last nine years there have been far too many cases where the government has allowed MRSA to become endemic.
"The inevitable result has been an evolving process leading to increased resistance to antibiotics.
"It is time for us to take on the threat of new and more dangerous bacteria."