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Hepatitis B surface antigen (HBsAg) loss or functional cure (FC) is considered the optimal therapeutic outcome for patients with chronic hepatitis B (CHB). However, the immune-pathological biomarkers and underlying mechanisms of FC remain unclear. In this study we comprehensively interrogate disease-associated cell states identified within intrahepatic tissue and matched PBMCs (peripheral blood mononuclear cells) from patients with CHB or after FC, at the resolution of single cells, to provide novel insights into putative mechanisms underlying FC. We combined single-cell transcriptomics (single-cell RNA sequencing) with multiparametric flow cytometry-based immune phenotyping, and multiplexed immunofluorescence to elucidate the immunopathological cell states associated with CHB vs. FC. We found that the intrahepatic environment in CHB and FC displays specific cell identities and molecular signatures that are distinct from those found in matched PBMCs. FC is associated with the emergence of an altered adaptive immune response marked by CD4 cytotoxic T lymphocytes, and an activated innate response represented by liver-resident natural killer cells, specific Kupffer cell subtypes and marginated neutrophils. Surprisingly, we found MHC class II-expressing hepatocytes in patients achieving FC, as well as low but persistent levels of covalently closed circular DNA and pregenomic RNA, which may play an important role in FC. Our study provides conceptually novel insights into the immuno-pathological control of HBV cure, and opens exciting new avenues for clinical management, biomarker discovery and therapeutic development. We believe that the discoveries from this study, as it relates to the activation of an innate and altered immune response that may facilitate sustained, low-grade inflammation, may have broader implications in the resolution of chronic viral hepatitis. This study dissects the immuno-pathological cell states associated with functionally cured chronic hepatitis B (defined by the loss of HBV surface antigen or HBsAg). We identified the sustained presence of very low viral load, accessory antigen-presenting hepatocytes, adaptive-memory-like natural killer cells, and the emergence of helper CD4 T cells with cytotoxic or effector-like signatures associated with functional cure, suggesting previously unsuspected alterations in the adaptive immune response, as well as a key role for the innate immune response in achieving or maintaining functional cure. Overall, the insights generated from this study may provide new avenues for the development of alternative therapies as well as patient surveillance for better clinical management of chronic hepatitis B. [Display omitted] • An altered adaptive immune response – associated with CD4 cytotoxic T lymphocytes – emerges in functionally cured patients. • Increased recruitment and margination of neutrophils in the liver suggests a low grade immune active state linked to functional cure. • MHC class II-expressing hepatocytes were identified as accessory antigen-presenting cells. • Alterations in the immuno-pathological cell states identified in the liver environment are not always reflected in peripheral circulation. [ABSTRACT FROM AUTHOR]