The compound Brilliant Blue G blocks a chemical that kills healthy spinal cord cells around the damaged area - an event that often causes more irreversible damage than the original injury.
BBG not only reduced the size of the lesion but also improved the recovery of motor skills, the rodent tests showed.
Those treated with BBG were later able to walk, although with a limp. Rats that did not receive the BBG solution never regained the ability to walk.
On the downside, the treatment causes the skin to temporarily turn bright blue and BBG needs to be injected soon after the trauma. The test injections were given within 15 minutes.
The new findings by researchers at the University of Rochester Medical Centre in New York build on work reported five years ago by the same team.
They discovered that adenosine triphosphate (ATP) - a chemical that keeps our cells alive - quickly pours into the area surrounding a spinal cord injury.
But they found it overstimulated otherwise healthy neurons and caused them to die from metabolic stress, creating a secondary injury.
Injecting oxidised ATP into the site of the injury helped stop this, they found.
But neurosurgeon Prof Maiken Nedergaard, who led the research, said: "No one wants to put a needle into a spinal cord that has just been severely injured so we knew we needed another way."
The new approach of using BBG has answered this problem because it can be administered intravenously.
More tests will be needed to prove the safety of BBG before human clinical trials can begin.
But researchers are optimistic new treatments for acute spinal cord injuries could emerge in the next few years.
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