The scientists grew a leg muscle starting from engineered cells cultured in a dish to produce a graft.
The graft was then implanted close to a normal, contracting skeletal muscle where the new muscle was nurtured and grown.
In time, the method could allow for patient-specific treatments for a large number of muscle disorders, researchers said.
The scientists used muscle precursor cells - mesoangioblasts - grown in the presence of a hydrogel (support matrix) in a tissue culture dish.
The cells were also genetically modified to produce a growth factor that stimulates blood vessel and nerve growth from the host.
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Replacing a damaged muscle with the graft also resulted in a functional artificial muscle very similar to a normal Tibialis anterior.
Tissue engineering of skeletal muscle is a significant challenge but has considerable potential for the treatment of the various types of irreversible damage to muscle that occur in diseases such as Duchenne muscular dystrophy.
In vitro-generated artificial muscles normally do not survive the transfer in vivo because the host does not create the necessary nerves and blood vessels that would support the muscle's considerable requirements for oxygen.
"The morphology and the structural organisation of the artificial organ are extremely similar to if not indistinguishable from a natural skeletal muscle," said Cesare Gargioli of the University of Rome, one of the lead authors of the study.
In future, irreversibly damaged muscles could be restored by implanting the patient's own cells within the hydrogel matrix on top of a residual muscle, adjacent to the damaged area.
The results are published in the journal EMBO Molecular Medicine.