A large proportion of the 2 to 3 per cent of infants who were allergic to cow's milk had a BLG intolerance, said Dr Stefan Wagner, one of the paper's lead authors.
The scientists first tested the process in a mouse model engineered to produce the sheep form of BLG protein in mouse milk. Using a technique called RNA interference, two microRNAs were then introduced into the mouse to knock down the expression of the sheep BLG protein - resulting in a 96 per cent reduction in the sheep BLG protein in mouse milk.
Next, they produced Daisy, a female calf genetically engineered to express the same two microRNAs but also targeting the BLG protein that is a normal constituent in cow's milk.
The resulting milk collected from Daisy had no detectable BLG protein and, unexpectedly, also had more than twice the level of the casein proteins that also normally occur in cow's milk.
"We now want to breed from Daisy and determine the milk composition and yield from a natural lactation," Dr Wagner said.
AgResearch believed the basic process of using designer microRNAs to target other genes could provide an efficient tool to change additional livestock traits, such as producing animals with enhanced disease resistance or improved lactation performance.
Dr Wagner and the institute's research director Dr Warren McNabb were reluctant to discuss what possible profits the discovery could bring when pressed by media, emphasising the research was in its early stages.
They noted New Zealand had strict regulations which meant the milk could not be commercially produced or consumed.
But Dr McNabb said: "We wouldn't knowingly want to do something which might produce a competitive advantage to dairy organisations that are not New Zealand-based."
Graeme Peters, of industry group Agcarm, said the research highlighted why New Zealand had to "free up the shackles" around GM food.
But a study this year by the Sustainability Council claimed it was not laws but resistance from food producers and consumers that was holding GM food back.
Greens MP Steffan Browning believed AgResearch's findings would only cause harm to the image of New Zealand and its $10 billion a year dairy industry.
"This is just them trying to push GE into New Zealand and trying to substantiate a huge waste of money."
GE Free NZ - which described the experiment as "the worst type of animal cruelty" - saw BLG as an "essential part of milk" and blamed breakdown products for causing allergies.
Long-term benefits of BLG milk
What was the breakthrough?
AgResearch has genetically engineered a cow which may be the first in the world to produce hypo-allergenic high-protein milk. Its research team aimed to produce milk which contained less of the beta-lactoglobulin (BLG) milk protein, not present in human milk, which is allergenic. Two to three per cent of infants are allergic to cows' milk, and BLG allergies comprise a large part of that percentage. AgResearch said the work could have longer-term benefits to understanding and combating allergies to dairy products.
And the reaction?
Some scientists have hailed AgResearch, but one noted that less BLG in milk protein could not guarantee it being completely hypo-allergenic. GE Free NZ has however called the study a "frightening development" and accused AgResearch of animal cruelty.
It claims BLG is an essential part of milk but is "destroyed" by pasteurisation and breakdown products can cause allergies. The Green Party felt the announcement will damage New Zealand's clean green brand.
Could it end up in our shops?
Not at the moment. The work is in the discovery phase with more work needed and under New Zealand's current GM regulations it can't be consumed or produced commercially. Partly for this reason, AgResearch can't talk about the commercial potential it has for New Zealand.
