Scientists say this would be vital for spinal injury patients in humans who had lost sexual function or bowel and bladder control.
The pets had all suffered spinal injuries which prevented them from using their back legs, the 'BBC News' reported.
Cambridge University researchers are cautiously optimistic the technique could eventually have a role in the treatment of human patients.
Researchers said the study is the first to test the transplant in "real-life" injuries rather than laboratory animals.
The dogs had olfactory ensheathing cells from the lining of their nose removed. These were grown and expanded for several weeks in the laboratory.
Of 34 pet dogs, 23 had the cells transplanted into the injury site - the rest were injected with a neutral fluid.
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Many of the dogs that received the transplant showed considerable improvement and were able to walk on a treadmill with the support of a harness.
None of the control group regained use of its back legs.
"Our findings are extremely exciting because they show for the first time that transplanting these types of cell into a severely damaged spinal cord can bring about significant improvement," Professor Robin Franklin, co-author of the study, said.
"We're confident that the technique might be able to restore at least a small amount of movement in human patients with spinal cord injuries but that's a long way from saying they might be able to regain all lost function," he said.
Franklin said the procedure might be used alongside drug treatments to promote nerve fibre regeneration and bioengineering to substitute damaged neural networks.
Researchers say the transplanted cells regenerated nerve fibres across the damaged region of the spinal cord. This enabled the dogs to regain the use of their back legs and coordinate movement with their front limbs.
The study was published in the neurology journal Brain.