It is believed that by gradually building up tolerance levels, allergy sufferers could protect themselves from accidental exposure.
After six months of treatment followed by six months of maintenance therapy, two-thirds of the 372 children who received the treatment were able to ingest 600 milligrams or more of peanut protein - the equivalent of two peanuts - without developing allergic symptoms.
After being unable to eat a tenth of a peanut at the start, by the end 67 per cent of those on the protein could eat two whole nuts, compared with just 4 per cent given the placebo, the study in the New England Journal of Medicine revealed.
In a year-long trial, children with a severe nut allergy were given increasing amounts of peanut protein.
"Peanut allergy is extremely hard to manage for children and their families, as they have to follow a strict peanut-free diet".
The results, announced Sunday at a conference of the American College of Allergy, Asthma & Immunology in Seattle, may lead to approval of what could be the first oral medication that ameliorates reactions in children with severe peanut allergies.
Sophie Pratt, 44, from Kentish Town in north London, enrolled her six-year-old daughter Emily, who has had a peanut allergy since she was one, on the study.
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"Her allergy was very severe so even a small amount of peanut could lead to a very serious reaction".
"The study has completely changed our lives", she said.
She can now tolerate about seven peanuts, which means she can safely eat foods even if they may contain traces of peanut. "The impact on our family life was huge".
Peanut allergy, a potentially life-threatening condition, has doubled over the last two decades and affects about 1 in 50 children in the UK.
The allergy is rarely outgrown and is the most common cause of food allergy deaths.
The PALISADE study was funded by Aimmune Therapeutics, which manufactures the peanut protein used during the trial.