When transplanted into pigs and rats, the kidneys worked, passing urine just like natural ones.
Getting the urine out has been a problem for earlier prototypes, causing them to balloon under the pressure.
The Japanese team got round this by growing extra plumbing for the kidney to stop the backlog, PNAS reports.
Although still years off human trials, the research helps guide the way towards the end goal of making organs for people, say experts.
In the UK, more than 6,000 people are waiting for a kidney – but because of a shortage of donors, fewer than 3,000 transplants are carried out each year.
More than 350 people die a year, almost one a day, waiting for a transplant.
Lab-grown kidneys using human stem cells could solve this problem.
Dr Takashi Yokoo and colleagues at the Jikei University School of Medicine in Tokyo used a stem cell method, but instead of just growing a kidney for the host animal, they set about growing a drainage tube too, along with a bladder to collect and store the urine.
When they connected this to the animal’s existing bladder, the system worked.
Urine passed from the transplanted kidney into the transplanted bladder and then into the rat bladder.
The transplant was still working well when they checked again eight weeks later.
Full story on the BBC website.