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Abstract Background Uninterrupted transmission of highly pathogenic avian influenza virus (HPAIV) H5N1 of clade 2.2.1 in Egypt since 2006 resulted in establishment of two main genetic clusters. The 2.2.1/C group where all recent human and majority of backyard origin viruses clustered together, meanwhile the majority of viruses derived from vaccinated poultry in commercial farms grouped in 2.2.1.1 clade. Findings In the present investigation, an HPAIV H5N1 was isolated from twenty weeks old layers chickens that were vaccinated with a homologous H5N1 vaccine at 1, 7 and 16 weeks old. At twenty weeks of age, birds showed cyanosis of comb and wattle, decrease in egg production and up to 27% mortality. Examined serum samples showed low antibody titer in HI test (Log2 3.2± 4.2). The hemagglutinin (HA) and neuraminidase (NA) genes of the isolated virus were closely related to viruses in 2.2.1/C group isolated from poultry in live bird market (LBM) and backyards or from infected people. Conspicuous mutations in the HA and NA genes including a deletion within the receptor binding domain in the HA globular head region were observed. Conclusions Despite repeated vaccination of layer chickens using a homologous H5N1 vaccine, infection with HPAIV H5N1 resulted in significant morbidity and mortality. In endemic countries like Egypt, rigorous control measures including enforcement of biosecurity, culling of infected birds and constant update of vaccine virus strains are highly required to prevent circulation of HPAIV H5N1 between backyard birds, commercial poultry, LBM and humans.