Inclusion Criteria:

1. Treatment naïve patients or interferon-treated patients 6 months before.
2. Male or female, 18 to 65 years of age.

3. Documented chronic hepatitis B defined by all of the following:

   • Clinical history compatible with compensated chronic hepatitis B.
   • Detectable serum hepatitis B surface antigen (HBsAg) >6 months and at the screening visit.
   • Hepatitis B e antigen (HBeAg) positive >3 months.
   • Serum HBV DNA > 2x105 IU/mL and raised serum ALT > 2xULN but < 5xULN determined on at least 2 occasions 1 month apart before.
4. Liver biopsy showing chronic hepatitis and fibrosis stage ≦ 4 by Ishak classification within 6 months.
5. Willing and able to comply with the study drug regimen and all other study requirements.
6. Willing and able to provide written informed consent to participate in the study.

Exclusion Criteria:

Patients will be excluded from the study for any of the following reasons:

1. Pregnant or nursing.
2. Of reproductive potential (men and women) and unwilling to use double-barrier method of contraception (i.e., condom with spermicide or diaphragm with spermicide).
3. Co-infection with hepatitis C virus (HCV), hepatitis D virus (HDV), or HIV.
4. History or clinical signs/symptoms of hepatic decompensation or portal hypertension, such as ascites, presence of esophageal varices or variceal bleeding, hepatic encephalopathy, or spontaneous bacterial peritonitis.
5. Liver cirrhosis (Ishak fibrosis score 5 or 6).
6. Any medical condition that requires prolonged or frequent use of systemic acyclovir or famciclovir (e.g., for recurrent herpes virus infections).
7. History of hepatocellular carcinoma (HCC) or findings suggestive of possible HCC, such as suspicious foci on imaging studies or elevated serum alpha-fetoprotein (AFP) levels. A history of treated malignancy other than HCC is allowable if the patient's malignancy has been in complete remission, off chemotherapy and without additional surgical intervention, during the preceding 3 years.
8. One or more known primary or secondary causes of liver disease other than hepatitis B (e.g., alcoholism, non-alcoholic steatohepatitis, autoimmune hepatitis, malignancy with hepatic involvement, hemochromatosis, alpha-1 antitrypsin deficiency, Wilson's disease, other congenital or metabolic conditions affecting the liver, congestive heart failure or other severe cardiopulmonary disease). Gilbert's syndrome and Dubin-Johnson syndrome will not exclude patients from participation in this trial.
9. History of clinically evident pancreatitis.
10. Currently abusing alcohol (i.e., an average daily intake of more than 40 g of ethanol) or illicit drugs or a history of alcohol abuse or illicit substance abuse within the preceding 2 years. Patients currently on methadone maintenance treatment programs are NOT eligible.
11. A medical condition that requires frequent or prolonged use of systemic corticosteroids (e.g., severe asthma, severe arthritis or autoimmune conditions, organ transplantation, adrenal insufficiency).
12. A medical condition requiring the chronic or prolonged use of potentially hepatotoxic drugs (dapsone, erythromycin, fluconazole, ketoconazole, rifampin, anti-tuberculosis regimens, etc.). All such drugs must have been discontinued ≥ 30 days prior to randomization.
13. A medical condition requiring use of nephrotoxic drugs (e.g., aminoglycosides, amphotericin B, foscarnet, vancomycin, cyclosporine, tacrolimus, or frequent nonsteroidal anti-inflammatory drugs (NSAIDS) or aspirin [administered daily for more than one week at a scheduled dose intended for anti-inflammatory therapy]). All such drugs must have been discontinued ≥ 30 days prior to randomization.
14. Any other concurrent medical or psychosocial condition likely to preclude compliance with the schedule of evaluations in the protocol or likely to confound the efficacy or safety observations of the study.
15. Enrolled or planning to enroll in another clinical trial of an investigational agent while participating in this study.

16. Any of the following laboratory values at Screening:

    • Hemoglobin (Hb) <11 mg/dL for men or <10 mg/dL for women.
    • Total white blood cell count (WBC) <2,500/mm3.
    • Absolute neutrophil count (ANC) <1,500/mm3.
    • Platelet count <75,000/mm3.
    • Serum albumin <3.2 g/dL.
    • Total bilirubin ≥2 mg/dL with direct bilirubin > 50% of total bilirubin.
    • Serum creatinine >1.0 x ULN.
    • Alpha-fetoprotein (AFP) >50 ng/mL (requires further evaluation, to rule-out hepatocellular carcinoma)
    • Creatinine clearance (CrCl) <0.83 mL/sec (<50 mL/min) calculated by the laboratory using the modified Cockcroft-Gault method.
    • Serum amylase or lipase ³1.5 x ULN.
    • Prothrombin time (PT) prolonged by >3 seconds or International Normalized Ratio (INR) > 1.5, based on the upper limits of normal (ULN) of the reference value, despite vitamin K administration.
17. Use of any investigational drugs within 30 days or 5 half-lives of randomization, whichever is longer.
18. Systemic malignancy within 5 years.
19. Previous treatment with telbivudine.
20. History of hypersensitivity to components of either telbivudine formulations, or to drugs with similar chemical structures.