Following almost a decade of work, researchers from Melbourne's Walter and Eliza Hall Institute identified and isolated stem cells from the pancreas, where insulin is produced. They then developed a technique to make the stem cells become insulin-producing cells.

''But these are not just cells that have some insulin inside them,'' said Len Harrison, from the institute's molecular medicine division. ''These are cells which respond to glucose like they would in the body normally.''

The researchers, led by Professor Harrison and Ilia Banakh, also found that the stem cells survived and continued to function when they were transplanted into mice - a key step in proving that the theory would apply to humans.

''The ultimate goal would be to stimulate the growth of these cells in situ, in a person's own body,'' Professor Harrison said.

The idea that she could one day be free of the belt she wears to administer her insulin doses via a tube to her abdomen is appealing to six-year-old Lexi White and her mother Louise, from the Melbourne suburb of Newport.

While she manages the swimming and dancing lessons that most six-year-old girls enjoy, supervising Lexi's diabetes is always in the back of Mrs White's mind.

Diagnosed with type 1 diabetes at just 12 months, Lexi needs her blood sugar levels tested after every meal.

''You hear of transplants as a cure for diabetes. But with their anti-rejection drugs the side-effects often outweigh the benefits,'' Mrs White said.

''To have Lexi cured without a transplant would be amazing. It would give the normality of life back to us.''

A hormone, insulin is produced in the pancreas and is crucial for controlling the body's blood sugar levels.

According to Diabetes Australia, 120,000 Australians live with type 1 diabetes. In those who have the condition, the immune system destroys the insulin-producing beta cells of the pancreas, leading to a potentially fatal elevation of blood glucose levels.

While Professor Harrison said the discovery - outlined in the journal PLoS One this month - was an important step in the process, a treatment to stimulate the stem cells in the pancreas was still years off.

Despite the breakthrough, the challenge to stop the body's immune system from attacking insulin cells - the cause of diabetes - still remains.

''As soon as a new beta cell is formed, its components, including insulin, are recognised as foreign and the immune system attacks it and kills it,'' Professor Harrison said. ''That's what we need to work on next.''