Researchers said the only problem is that the cells have too much genetic material to function properly.
Scientists have to figure a way around that before they can use the cells to develop genetically-matched tissue to treat various diseases.
In the study, researchers injected DNA from skin cells of a volunteer into donor eggs. Normally in cloning, the egg's genetic material is removed first, but researchers said that didn't work.
This new method only worked when the donor's DNA was left inside the egg and the volunteer's genetic material was added. That meant the result had 69 chromosomes, which is 23 too many.
Lead author Dieter Egli, a senior research fellow at the New York Stem Cell Foundation, said that's the reason why these cells could never make a viable human being.
However, the researchers were not trying to clone to create a human; they just wanted to produce stem cells.
Egli said he is trying several different approaches to overcome the barrier of too much DNA with the new technique. What's important, he said, is that it shows researchers can use this method to turn a person's own cells into potent stem cells, something that has been demonstrated before in animals.
The study was published online Wednesday in the journal Nature.
Study co-author Scott Noggle said researchers started with 270 eggs and eventually created two stem cell lines.
There's also another promising method to create personalized stem cells that doesn't involve embryos. That technique reprograms skin cells to turn into stem cells. Egli says that method has problems, too.
George Daley of the Harvard Stem Cell Institute said the New York group's work "is a major step forward scientifically," but the problem of the egg's leftover DNA is a serious limitation.
Daley said he thinks the alternative method of reprogramming cells will end up being more useful in the long run.
Arthur Caplan, director of the Center for Bioethics at the University of Pennsylvania, said this new work shows how hard it would be to use cloning to create people. That avoids a major ethical concern with embryonic stem cells, he said.
The Associated Press contributed to this report.