The disorder, which affects newborn foals, causes them to die by attacking their immune systems so that they are unable to fight infection or disease.
At least a quarter of the foals born this year are expected to die, and the situation is growing steadily worse, according to Dennis Brunt, a fell pony breeder and secretary of a newly formed charity, Fell Pony 2000. "We are very concerned," he said. "There are only 6,000 fell ponies worldwide, most of them in this country. About 50 of the new foals born this year will die in a very distressing way.
"The ponies are born effectively without any form of immune system, laying them open to any kind of infection, including those you wouldn't normally find in a horse.
"They suffer painful ulcerated stomachs, damaged lungs, pneumonia and other conditions, but there is nothing that can be done about it. There is no cure, although owners have spent hundreds of pounds trying to save their foals. It will be eradicated only through breeding."
Mr Brunt and his wife, Dineen, have two healthy foals born last May on their farm in Todmorden, West Yorkshire. "We have been lucky," said Mrs Brunt. "We have never had a foal born with this problem. But it can happen to any breeder."
The couple are working closely with the Fell Pony Society and veterinary researchers at Liverpool University, headed by Dr Derek Knottenbelt, senior lecturer in equine studies. He said: "The disease is almost invariably fatal. No breed can stand that kind of problem for long. Failure to recognise and identify the problem could be catastrophic. We have examined a few of the foals before death and a number immediately after. Respiratory tract virus infections and gut and joint infections which have no effect on normal foals are proving fatal. Breathing problems, diarrhoea, inflammation of body fat and failure to grow and feed properly are also a risk. In all cases, the foals' immune systems seem unable to take over resistance to disease."
Dr Knottenbelt has travelled around the country, meeting breeders - including the Queen - to explain how clinical and post-mortem examinations have suggested that the cause of the illness is not an infection or toxic contamination, but a genetic defect.
Foals affected tend to be born weak, lethargic and anaemic. Signs of the disease include a rough or discoloured coat, and poor weight gain.
Dr Knottenbelt said proper financing was needed to continue the work. "If we were talking about thoroughbreds we would be awash with money, but because we are dealing with a humble fell pony, there is nothing.
"But I know breeders are doing everything they can to help us deal with this very distressing problem. We still have to identify the gene involved. Then a test needs to be devised to identify carriers of the defective gene, so breeders will be able to eventually eradicate the problem."
Sally Wood, secretary of the Fell Pony Society, said: "Everyone has been very supportive, working hard to raise money for research. We have set a target of pounds 25,000, a great deal of money for a society as small as ours, but there is a great amount of good will and our members care very passionately about these animals."
Fell ponies usually fetch no more than pounds 200 as foals, and up to pounds 2,000 as adults. They are native to the north Pennines and the Cumberland and Westmorland areas of the Lake District and were used extensively in the last century for hauling lead from mines.
They are favoured by riding stables as children's mounts, and by the riding for the disabled movement, because of their docile temperaments.