The patient, from France, was a boy "cured" of a condition called X-SCID, popularly known as "bubble boy disease".
This genetic defect leaves children without an immune system - they need to be kept in sterile conditions or might catch fatal infections.
The treatment involves taking the faulty immune cells from the child's bone marrow, genetically modifying them in the laboratory so they work properly, then putting them back to kick-start the immune system.
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Two patients out of the dozen or so on the French trial is clearly a matter for concern
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Stephen Cox, Great Ormond Street Hospital, London
Four children have received similar pioneering treatment in the UK at Great Ormond Street Hospital in London.
It appeared to work perfectly in many of the patients given the treatment.
However, another French boy who was treated at the Necker Hospital in Paris fell ill with a leukaemic illness late last year.
Both boys are said to be responding to treatment and are "stable", but the emergence of another case is a severe blow to the development of gene therapy.
Trials stopped
The Food and Drugs Administration in the US and the French authorities have now suspended the treatment, and many other trials involving a similar gene modification technique.
In the UK, no further X-SCID gene therapy will be carried out until the question marks over safety have been resolved.
Stephen Cox, from Great Ormond Street Hospital, told BBC News Online that all the four UK patients were well.
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I think we shouldn't view this as the death knell to gene therapy
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Dr Harry Malech, NIAID
He said that the hospital was liaising closely with the body that regulates gene therapy in the UK.
He said: "Every family on the trials was briefed on the possibility that gene therapy might cause cancer but two patients out of the dozen or so on the French trial is clearly a matter for concern.
"It would be highly premature to reach any final conclusion until we have the full facts. We do not know if the risks on the French programme are the same as ours."
Dr Harry Malech, of the National Institute of Allergies and Infectious Diseases in the US, told Reuters: "I think we shouldn't view this as the death knell to gene therapy.
"We need more good science to work out what went wrong."