Influenza A viruses occur worldwide in wild birds and are occasionally associated with outbreaks in commercial chickens and turkeys. However, avian influenza viruses have not been isolated from wild birds or poultry in South America. A recent outbreak in chickens of H7N3 low pathogenic avian influenza (LPAI) occurred in Chile. One month later, after a sudden increase in deaths, H7N3 highly pathogenic avian influenza (HPAI) virus was isolated. Sequence analysis of all eight genes of the LPAI virus and the HPAI viruses showed minor differences between the viruses except at the hemagglutinin (HA) cleavage site. The LPAI virus had a cleavage site similar to other low pathogenic H7 viruses, but the HPAI isolates had a 30-nucleotide insert. The insertion likely occurred by recombination between the HA and nucleoprotein genes of the LPAI virus, resulting in a virulence shift. Sequence comparison of all eight gene segments showed the Chilean viruses were also distinct from all other avian influenza viruses and represent a distinct South American clade.