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The basal core promoter (BCP) of hepatitis B virus (HBV) controls the transcription of both the precore RNA and the core RNA. The precore RNA codes for the secreted e antigen, while the core RNA codes for the major core protein and the DNA polymerase and also is the pregenomic RNA. The double mutation of nucleotides 1762 and 1764 in the BCP from A and G to T and A, respectively, is frequently observed in HBV sequences isolated from chronic patients. Several papers have reported conflicting results regarding whether this double mutation is important for e antigen expression. In order to address this issue, we have introduced this double mutation into the HBV genome and studied its effects on HBV gene expression and replication. Our results indicate that the mutated BCP can no longer bind a liver-enriched transcription factor(s) and that the transcription of only precore RNA and, consequently, the expression of e antigen were reduced. The reduction of precore gene expression was accompanied by an increase in progeny virus production. This increase was found to occur at or immediately prior to the encapsidation of the pregenomic RNA. Thus, the results of our in vitro study resolve the discrepancy of previous clinical observations and indicate that this double mutation suppresses but does not abolish the e antigen phenotype. The implications of these findings in the pathogenesis of HBV are discussed.