Chronic myeloid leukemia (CML) is a clonal hematopoietic disorder originated from hematopoietic stem cells (HSCs) with the Philadelphia chromosome which produces BCR-ABL fusion protein. Targeting tyrosine kinase activity of BCR-ABL by tyrosine kinase inhibitors can deplete most of the differentiated CML cells but not CML leukemia initiating cells (LICs). Therefore it is mandatory to develop the eradication strategy of CML LICs. Here we show that CML LICs show a severely hypoxic phenotype then the normal HSCs in the niche. HIF-1alpha, a master regulator of cellular hypoxia response, plays a critical role for maintaining HSC in the hypoxic niche. HIF-1alpha-deficient p210BCR-ABL retrovirus transduced Lineage marker- Sca-1+ c-Kit+ (LSK) cells are defective in establishing LIC population in vivo. Under normoxic conditions, HIF-1alpha is recognized by an E3 ubiquitin ligase VHL. Although VHL deficient HSCs lose transplantation capacity, they show an accelerated formation of CML LIC after p210BCR-ABL retrovirus transduction. To elucidate the putative LIC markers in the hypoxic niche, we have screened various surface markers using p210BCR-ABL retrovirus-induced CML-like myeloproliferative disease model. Among them, we demonstrate that CML LICs are divided into CD25+FcεRIα- Lineage marker (Lin)- Sca-1+ c-Kit+ (F-LSK) cells and CD25-F-LSK cells. We show that CD25+F-LSK cells have multipotent differentiation capacity with preference to cytokine-producing mast cell commitment. Although both CD25-F-LSK and CD25+F-LSK cells differentiate into one another, CD25+F-LSK cells show higher LIC capacity than CD25-F-LSK cells. High expression of CD25 in CD34+CD38- fraction of human CML indicate that CD25+LICs constitute "LIC-derived niche" that can be a preferential therapeutic target for CML LICs.