The mechanisms of chronic HBV infection and immunopathogenesis are poorly understood due to a lack of a robust small animal model. Here we report the development of a humanized mouse model with both human immune system and human liver cells by reconstituting the immunodeficient A2/NSG (NOD.Cg-Prkdc(scid) Il2rg(tm1Wjl)/SzJ mice with human HLA-A2 transgene) with human hematopoietic stem cells and liver progenitor cells (A2/NSG-hu HSC/Hep mice). The A2/NSG-hu HSC/Hep mouse supported HBV infection and approximately 75% of HBV infected mice established persistent infection for at least 4 months. We detected human immune responses, albeit impaired in the liver, chronic liver inflammation and liver fibrosis in infected animals. An HBV neutralizing antibody efficiently inhibited HBV infection and associated liver diseases in humanized mice. In addition, we found that the HBV mediated liver disease was associated with high level of infiltrated human macrophages with M2-like activation phenotype. Importantly, similar M2-like macrophage accumulation was confirmed in chronic hepatitis B patients with liver diseases. Furthermore, gene expression analysis showed that induction of M2-like macrophage in the liver is associated with accelerated liver fibrosis and necrosis in patients with acute HBV-induced liver failure. Lastly, we demonstrate that HBV promotes M2-like activation in both M1 and M2 macrophages in cell culture studies. Our study demonstrates that the A2/NSG-hu HSC/Hep mouse model is valuable in studying HBV infection, human immune responses and associated liver diseases. Furthermore, results from this study suggest a critical role for macrophage polarization in hepatitis B virus-induced immune impairment and liver pathology.