To determine the genetic origins of novel H3 avian influenza viruses of chickens and ducks in Korea, genetic characterization of H3 avian influenza viruses isolated from live poultry markets and migratory aquatic birds in South Korea during 2004-2006 was conducted. Phylogenetic analysis revealed that at least four novel genotypes of H3N2 and two genotypes of H3N6 avian influenza viruses were co-circulating in backyard poultry of Korea. The viruses were reassortants between H9N2 viruses of Korean chickens and unknown influenza viruses of migratory birds. Genetic comparison of H3 viruses from live bird markets with those from wild bird isolates revealed that certain gene segments of wild bird isolates are related closely to those of Korean group H9N2 viruses isolated from live poultry markets in 2003. Furthermore, animal-challenge studies demonstrated that the pathogenicity of certain avian H3 influenza viruses was altered due to reassortment, leading to H3 avian influenza viruses in Korea that can potentially expand their host range to include mammals. These studies emphasize the continuing need to monitor backyard poultry at live poultry markets to better understand interspecies transmission and the emergence of novel influenza viruses that have the potential to infect humans.