The malignant transformation of hepatic progenitor cells (HPCs) in the inflammatory microenvironment is the root cause of hepatocarcinogenesis. However, the potential molecular mechanisms are still elusive. The HPCs subgroup is identified by single-cell RNA (scRNA) sequencing and the phenotype of HPCs is investigated in the primary HCC model. Bulk RNA sequencing (RNA-seq) and proteomic analyses are also performed on HPC-derived organoids. It is found that tumors are formed from HPCs in peritumor tissue at the 16th week in a HCC model. Furthermore, it is confirmed that the macrophage-derived TWEAK/Fn14 promoted the expression of inhibitor of differentiation-1 (ID1) in HPCs via NF-κB signaling and a high level of ID1 induced aberrant differentiation of HPCs. Mechanistically, ID1 suppressed differentiation and promoted proliferation in HPCs through the inhibition of HNF4α and Rap1GAP transcriptions. Finally, scRNA sequencing of HCC patients and investigation of clinical specimens also verified that the expression of ID1 is correlated with aberrant differentiation of HPCs into cancer stem cells, patients with high levels of ID1 in HPCs showed a poorer prognosis. This study provides important intervention targets and a theoretical basis for the clinical diagnosis and treatment of HCC. Keywords: hepatic progenitor cells; inflammatory microenvironment; inhibitor of differentiation-1; single-cell RNA sequencing; tumor necrosis factor-like weak inducer of apoptosis (TWEAK).