The £2m centre at Bristol will house some of the UKs top experts in the area and will examine the use of umbilical cord blood in fighting the disease.
Researchers will look specifically at the transplantation of stem blood cells from human placenta to children with leukaemia.
Stem cells are used to promote growth in blood cells that have been damaged by cancer.
Human umbilical cord blood is rich in these cells. Previously, the umbilical cord was discarded as a waste product after birth but doctors can now extract and bank stem cells ready for treating children with leukaemia and other life threatening blood disorders.
Stem cells have been transplanted from bone marrow for several decades but taking these cells from cord blood is seen as a more effective option.
Professor Jill Hows, professor of clinical haematology at the University of Bristol, said the development of the research centre will represent a major step in the fight against leukaemia.
"Core blood is an exciting new source of transplantable stem cells that may be used to cure patients with leukaemia.
"By bringing top researchers together under one roof this state-of-the are research centre will enable us to take on more step towards making leukaemia a disease of the past," she said.
New procedure
The procedure of transplanting blood stem cells from placenta to a child is a relatively recent development and has only been used once in the UK.
The treatment was used successfully in 1998 on Jake Parkin, who was two-years-old at the time. He was suffering from rare myeloid leukaemia and was close to death.
His life was saved after blood from the placenta of the mother of a new-born baby girl in the US was flown to Sheffield and used to replace vital blood cells in Jake.
John Parkin, Jake's father, said he wanted the research centre to help other parents to benefit from the treatment.
"I am convinced it saved Jake's life as his condition was deteriorating rapidly and doctors said there wasn't enough time to find a bone marrow donor.
"We feel so fortunate this has been made available to us and we want other parents to have the same benefits."
The centre, which will open in February 2001, is being funded by the charity Children with Leukaemia.
The funding campaign was first launched in 1998 by former English footballer Gary Lineker, whose eldest son George suffered from leukaemia.
The turf-cutting ceremony came on a day when US researchers found that umbilical core blood was as effective bone marrow as a source of stem cells for children.