The protein, KDI tripeptide, works by blocking the harmful effects of a substance present in degenerative brain diseases and spinal cord injuries.
By blocking this substance, called glutamate, KDI prevents permanent cell death and helps the body heal itself.
The Finnish work from the University of Helsinki will be published online by the Journal of Neuroscience Research.
So far the researchers have tested KDI in the lab on animals and nerve cells from humans.
The findings have been promising and they hope to be able to begin treating people with nerve and degenerative brain diseases, such as Alzheimer's and Parkinson's disease, using KDI injections within a year.
Since KDI occurs naturally in some form in the body, researchers do not believe it will have major toxic side effects. None have been noted during their work to date.
Lead researcher Dr Päivi Liesi said: "We have had such good results with animals that I think it is totally feasible we would be ready to start human clinical trials within a year."
Currently, KDI has to be injected as a solution directly to the damaged area.
However, in the future it might be possible to make the treatment as an oral drug or an intravenous injection, said Dr Liesi.
Her work builds on that of Dr George Martin from the National Institute on Ageing, at the US National Institutes of Health, who first discovered the molecule that KDI is derived from.
Dr Martin said: "This represents a new approach and one with considerable promise.
"When you look at the potential for preventing spinal cord injury progressing to total lack of physical control, to the fact that people could regenerate and regain their lives, this could be enormously important."
Dr Hugh Pearson, from the Alzheimer's Research Trust and the School of Biomedical Sciences at Leeds University, said: "This is an interesting study, though while the peptide has some significance for Alzheimer's disease treatment, it would be in slowing the mental decline associated with the disease. It does not represent a cure.
"KDI will not generate new neurons but will increase the connections between the remaining neurons in the patient's brain.
"There is some evidence that this can improve cognition in Alzheimer's disease patients."
He said there might be problems with delivery of KDI - the tripeptide would be broken down by the body if given orally or intravenously.
Although the researchers do not expect side effects, he said the peptide could upset the balance of electrical activity in neurons and this might have some short to long term side effects.
"While there are some benefits, this approach is perhaps more significant for spinal cord repair than for Alzheimer's disease, where neurite outgrowth and reconnection of nerve cells with their target will provide long-lasting repair of damage."