The presently increasing demand for rare earth elements (REE), particularly in high-tech and "green energy" applications, has led to global interest in the distribution, origins and formation conditions of REE deposits. The World's first hard-rock REE sources, the polymetallic deposits of Bastnäsfältet in Bergslagen, central Sweden, were also the place of the original discovery of several REE and many of their host minerals. Similar deposits with high concentrations of REE occur along a > 100 km corridor in the region and they share a number of geological and mineralogical features; all comprising Palaeoproterozoic, skarn-hosted magnetite-REE mineralisation of ambiguous origin. Here we report oxygen isotope data for magnetite and quartz, and oxygen and carbon isotope data for carbonates from ten of these classic deposits, to model and assess their mode of origin. Combined with existing geological observations, the isotope results support an origin in a c. 1.9 Ga shallow-marine back-arc, sub-seafloor setting, where felsic magmatic-sourced, high-temperature fluids reacted with pre-existing limestone interlayers, leading to localised skarn formation and magnetite-REE-mineral precipitation. These findings help us to better understand the geological processes that have produced economic REE mineralisation and may assist future exploration for these critical commodities.