BACKGROUND/AIMS: Chronic hepatitis has been divided into chronic persistent hepatitis, chronic lobular hepatitis and chronic active hepatitis. These terms should be discontinued in favor of etiologic terminology. The activity of necro-inflammation and the degree of fibrosis should be evaluated for grading the severity and the stage of the disease. In this study, we sought to evaluate the long-term outcome and prognostic factors of chronic hepatitis B according to the new histological classification of chronic hepatitis proposed by the Korean Study Group for the Pathology of Digestive Diseases. METHOD: One hundred and eighty-eight patients (mean age, 35.0 years; male/female 3.9:1) with biopsy-proven chronic hepatitis B were retrospectively assessed with a mean follow-up of 80.6 months. The patients were divided into a biochemically-active group and a biochemically-inactive group according to serum alanine aminotransferase (ALT) changes during follow-up periods. The development of compensated cirrhosis and hepatocellular carcinoma were investigated during follow-up periods. As well, the liver biopsy specimens of the patients were reviewed according to the new histological classification of chronic hepatitis (grade of lobular activity and porto-periportal activity, stage of fibrosis). RESULTS: Lobular activity and porto-periportal activity correlated with the serum ALT level at the time of biopsy (p<0.05). The development of compensated cirrhosis correlated with porto-periportal activity and stage of fibrosis (p<0.05). The probability of the development of compensated cirrhosis, decompensated cirrhosis and hepatocellular carcinoma increased significantly in the older age group (>= or 40 years) and the biochemically-active hepatitis group (p<0.01). The risk factors for the development of compensated cirrhosis and decompensated cirrhosis were old age (>= or 40 years) and biochemically-active hepatitis during follow-up periods. For hepatocellular carcinoma they were old age (>= or 40 years), male gender and biochemically-active hepatitis during follow up periods by multivariate analysis. CONCLUSIONS: The present study suggests that the new histological classification of chronic hepatitis indicates hepatitis activity and the prospect for progression to cirrhosis in chronic hepatitis B. The biochemical hepatitis activity during follow-up periods is the independent prognostic factor for the development of cirrhosis and hepatocellular carcinoma in chronic hepatitis B. Therefore, effective treatment to decrease hepatitis activity may reduce the develoment of cirrhosis and hepatocellular carcinoma.