The tools used to create the images remain legal in the UK, the Internet Watch Foundation says, even though AI child sexual abuse images are illegal.
The girl sent a photo to a boy in her class before the image and her phone number were added to all-male online chat groups - she later started disappearing before being abused by "unknown men".
Sextortion is a form of blackmail in which a child is tricked into sending sexual images of themselves to abusers, who then threaten to share the pictures with friends, family or more widely on the internet if they are not paid money.
The Internet Watch Foundation (IWF) warns of a "shocking" rise of primary school children being coerced into performing sexually online.
The images that Nelson made have been linked back to real children around the world. In some cases, he then went on to encourage his clients to rape and sexually assault the youngsters.
A leading children's charity is calling on Prime Minister Rishi Sunak to tackle AI-generated child sexual abuse imagery, when the UK hosts the first global summit on AI safety this autumn.
In a review of material posted on the dark web, the Internet Watch Foundation found that deepfakes featuring children were becoming more extreme.
Sexual predators are grooming children under six into performing “disturbing” acts of sexual abuse via phones or webcams a charity has warned.
"Law enforcement cannot arrest its way out of this problem."
A leading child protection organisation has warned that abuse of AI technology threatens to "overwhelm" the internet.
A new campaign warning children of the dangers of sharing sexually explicit images and videos has been launched, with an appeal for parents and young people to openly discuss these issues.
Young children are now more exposed to being groomed online due to a reliance on tech devices in lockdown, a charity has claimed.