The DNA of tumor tissue K1 obtained at autopsy from a case of hepatocellular carcinoma (HCC) in a 9-year-old boy contained integrated hepatitis B virus (HBV) DNA at a single site in the chromosome (case 2, Chang et al.: Hepatology 13:316-320, 1991). To characterize further the integrated viral DNA sequences, a genomic library of the K1 DNA was constructed in the lambda L47.1 vector. One phage clone, designated KTM-1, containing integrated HBV DNA and cellular flanking sequences was obtained from this library. The restriction map and DNA sequence of this clone showed that the integrated HBV DNA was partially deleted and rearranged. The most conserved viral DNA sequences were surface and X genes and arranged in the opposite orientation. The viral core gene was not present. Using chloramphenicol acetyltransferase (CAT) assay, the C-terminal truncated X open reading frame was demonstrated to retain its trans-activating ability. The result suggested that the functional integrated X gene may play a role in hepatocarcinogenesis. The study also showed that the right cellular flanking sequences were human alphoid repetitive sequences.