The research team says they created stem cell lines by removing single cells from embryos using a process that leaves them intact.
The new technique takes just a single cell from an early-stage embryo and uses it to seed a line of stem cells.
The rest of the embryo retains the potential to develop into a healthy human.
The findings have been published in the British journal Nature.
The method was developed by Advanced Cell Technology, a biotechnology company, in Alameda, California.
The growth of stem cells has sparked fierce debate in the US as it would normally result in embryo destruction.
"This will make it far more difficult to oppose this research," said researcher Robert Lanza.
US law currently bans federal funding of any research that harms human embryos.
New technique encouraging
Stem cell researchers were impressed by the new technique and a White House spokeswoman called it encouraging.
Embryonic stem cells have great medical potential because of their ability to transform themselves into virtually any human tissue.
They have been likened to the holy grail for a wide variety of illnesses including cancer, Alzheimer’s and Parkinson’s disease.
With further research, it is hoped they could be used to treat these illnesses as well as stroke, diabetes, arthritis and spinal cord injuries.
"The science is interesting and important," said John Harris, a professor of bioethics at the University of Manchester in Britain.
"I think this will become a standard way of producing stem cell lines," said Ronald M. Green, a Dartmouth College professor of religion who is an unpaid bioethics adviser to Advanced Cell Technology.
Strong opposition
Opponents say the creation stem cells should not come at the expense of human life, even in its most early stages.
Stem cell research has some powerful opponents including the Vatican and US President George W Bush.
Some say the new procedure solves nothing, because even a single cell could theoretically grow into a full-fledged human.
A representative of the US Conference of Catholic Bishops rejected the method as "gravely unethical."
"It is widely believed that one cell of a very early embryo may separate and become a new embryo, an identical twin," said spokesman Richard Doerflinger.
A number of stem cell researchers and bioethicists dismissed it as scientifically suboptimal and politically ill-advised.
"This will please no one," predicted longtime critic Glenn McGee, director of the Alden March Bioethics Institute in Albany, New York.
Few on either side of the debate believe the new procedure would end the long-running bitter impasse over the science.
Concerns over efficiency
Stem cell researchers complain that the new approach is not as efficient as their current method of creating stem cells.
Current procedures involve the destruction of stem cells after five days of development, when they consist of about 100 cells.
Advanced Cell Technology was able to produce two viable stem cell lines from a total of 16 embryos.
The lines appeared to exhibit the full potential of embryonic stem cells to develop into any type of human tissue, the researchers reported.
But additional study is needed to verify that.
Technique could reverse Australian MP’s vote
At least one Australian politician says he would consider supporting legislation for stem cell research if embryos would not be destroyed.
Prime Minister John Howard has promised MPs a conscience vote on overturning the current ban on therapeutic cloning.
Private members' bills seeking to expand the research are being drawn up by Liberal senator and former health minister Kay Patterson, and Australian Democrats senator Natasha Stott Despoja.
Tasmanian Liberal senator Guy Barnett, a staunch opponent of therapeutic cloning, said he may support a bill if it guaranteed embryos created to produce stem cells were not destroyed.
"I would consider that very carefully and I would hope that all members of parliament would consider the merit of such a thing where we can avoid the ethical issues of destroying a human embryo," he told ABC Radio.
"It highlights the opportunity and the possibility of avoiding altogether the ethical issues raised by embryonic stem cell research which, under the proposals, require the destruction of the human embryo," he said.
"That's good news because it focuses on what needs to be considered, and that is the human embryo and its life."
The Lockhart committee comprising a panel of scientists, reviewed the Australian legislation which prohibits therapeutic cloning and has recommended the ban be overturned.
But Cabinet rejected the committee's recommendation in June.
Prime Minister Howard bowed to backbench pressure and promised a free vote a fortnight ago.