We report for the first time the occurrence of leucogranite bodies that intruded the Ailaoshan metamorphic complex along the Ailao Shan-Red River (ASRR) shear zone. Leucogranites in Yuanyang, Southeast Yunnan province, are composed of quartz (~30%), alkali feldspar (~45%), plagioclase (~5%), muscovite (~13%) and biotite (~3%) and other minor silicate minerals (~3%, garnet, tourmaline). U–Pb dating of zircon from leucogranites yields a weighted mean age of 27.4 ± 0.5 Ma, suggesting a late Oligocene anatexis event. These leucogranites are strongly peraluminous with A/CNK values of 1.01–1.19 and have high SiO2 (73.3–77.0 wt%) and K2O + Na2O (7.87–10.08 wt%), and low CaO (0.41–0.99 wt%), MgO (0.04–0.21 wt%), TiO2 (0.01–0.06 wt%) and Fe2O3T (0.44–0.86 wt%) contents. They are geochemically similar to Himalayan leucogranites and are enriched in large-ion lithophile elements (e.g. Rb), and depleted in high-field-strength elements (e.g. Nb, Zr, and Hf). They have low Zr/Hf (12.3–22.5) and Nb/Ta (2.54–12.73) with negative Eu anomalies (Eu/Eu* = 0.05–0.45), indicative of extensive fractional crystallization of plagioclase and zircon. In addition, these rocks have low 87Sr/86Sr (t) (0.7072–0.7111), high εNd(t) (−1.53 to −3.61). They contain zircon grains with εHf (−5 to +1.8) and old two-stage Hf model ages of 1.24–1.02 Ga, implying that they were probably derived from partial melting of amphibolite (old crustal material) within the lower crust. In combination with previous studies of metamorphism of the ASRR shear zone, our study demonstrates that the leucogranites may have been generated in a highly dynamic setting involving both extrusion and extension that defined the beginning of left-lateral slip-strike movement of the ASRR shear zone at 27 Ma.