A newly engineered microbe can do the work by metabolising all of the major sugars in brown seaweed, potentially making it a cost-competitive alternative to petroleum fuel, said the report in the US journal Science.
The team at the Berkeley, California-based Bio Architecture Lab engineered a form of E coli bacteria that can digest the seaweed's sugars into ethanol, it said.
Unlike other microbes before, researchers found it can attack the primary sugar constituent in seaweed, known as alginate.
"Our scientists have engineered an enzyme to degrade and a pathway to metabolise the alginate, allowing us to utilise all the major sugars in seaweed, said Daniel Trunfio, chief executive at Bio Architecture Lab.
The advance "makes the biomass an economical feedstock for the production of renewable fuels and chemicals," he said.
A company spokesperson told AFP that the lab currently has four aquafarming sites in Chile where it hopes to "scale up its microbe technology as the next step on the path to commercialisation" in the next three years.
Seaweed is seen as an appealing option for biofuel because, unlike corn and sugar cane, it does not use arable land and so does not compete with crops grown for food.
Less than three percent of the world's coastal waters can produce enough seaweed to replace some 60 billion gallons of fossil fuel, according to background information in the article.
At peak production, seaweed could produce 19 000 litres per hectare annually, about twice the level of ethanol productivity from sugarcane and five times higher than the ethanol productivity from corn.
Funding for the research came from the US department of energy's Advanced Research Projects Agency, a grant from InnovaChile, and Norwegian oil giant Statoil.