The Scottish singer, who appeared on the TV talent show in 2006, lost her battle with the disease aged just 37.
The wheelchair-bound singer and actress was first diagnosed with bladder cancer two years ago.
But it was thought she was beating the killer disease after undergoing three months of gruelling chemotherapy which almost left her deaf.
The singer leaves a son, Joshua, seven, with property developer partner Dean Robertson, 36.
The mother-of-one had been spurred on by messages of support from her X Factor mentor Sharon Osbourne and Britain’s Got Talent (BGT) star Susan Boyle, who hailed her as an inspiration in her autobiography.
Last night, it was revealed that Kerry and Miss Boyle were about to go into the studio together to record a duet until the project was halted just days ago by the former’s ill health.
Kerry, of Pumpherston, West Lothian – who broke her back in a fall when she was 13 – was diagnosed with cancer in September 2010 after suffering two years of stomach pains.
When details of her illness were first made public in April last year, she said: ‘It was small cell cancer, one of the fastest-spreading. I wasn’t surprised. The fight is long, but I want to live. I’ve got so much more to give.’
However, last night, a brief statement from her management company said: ‘It is with deep sadness we announce that Kerry passed away at home, earlier today following a battle with cancer. At this time, our thoughts and prayers are with her family and friends.’
Her manager, Ewan Gallagher, said: ‘This is a desperately sad time for all Kerry’s friends and family. She was such a gifted singer and song-writer. She left more than 40 of her own songs unrecorded at her death.
‘And she had forged a close friendship with Susan Boyle, who became very attached to Kerry because both are from West Lothian.
‘Susan wrote in her autobiography that Kerry’s appearance on X Factor was what gave her the courage to appear on BGT.
‘The pair were about to record a duet of Wings To Fly, which has only appeared as a bonus track on an album released by Susan in Japan. I’m sure it would have been a huge hit and the words have such poignancy. I don’t know what will happen with that project now.’
Born in 1974 into a musical family – her late grandfather, Bobby McKerracher, was known as ‘the Scottish Bing Crosby’ – Kerry was aged five when her father was killed in a road crash.
Raised by her mother, Margaret, also a talented singer, she showed early promise as a gymnast at West Calder High School before she fell from a tree aged 13 and broke her back, leaving her partially paralysed from the waist down.
Determined to remain in mainstream schooling, she re-learnt how to walk with crutches and leg braces in just six weeks, earning a Child of Achievement Award.
Of her disability, she once said: ‘Life changed completely for me from an early age. In some people’s eyes it could be a hindrance but in my eyes it’s not. If anything, it gives me all the more reason to kick my heels in and go on. I am determined and I will achieve.’
After studying music and drama at Jewel and Esk Valley College in Edinburgh, she formed the dance band Nexus in 1993 before leaving to join QFX, whose album Freedom reached Number 21 in the UK charts.
Talent spotted by Kenny MacDonald, manager of The Proclaimers, she was selected to record a song for the UK´s entry for the Eurovision Song Contest in 1997, coming second to Katrina and the Waves, who went on to win Eurovision with Love Shine a Light.
In 2006, Kerry secured her biggest break after making the finals of series three of The X Factor, which was eventually won by future Grammy award nominee Leona Lewis.
She managed to last until Week 3, when she was voted off by Louis Walsh.
Kerry later concentrated on her acting career and songwriting and had more than 40 songs still unrecorded at her death.
As an actress, she performed on stage, radio and television productions, with notable appearances as Carol-Ann in Annie Griffin’s Channel 4 series The Book Group, and in the award-winning BBC children’s drama series Grange Hill.
Last month, she accepted a role as an ambassador with Action for Bladder Cancer (ABC), the UK’s only charity dedicated to fighting bladder cancer, the fourth most common cancer in men and 11th most common in women with around 10,000 Britons diagnosed with the disease every year.
Colin Bunce, chair of Action on Bladder Cancer, said: ‘We are deeply saddened by the news about Kerry. She was a truly inspirational person and we were delighted when, before Christmas, she accepted our invitation to become an Ambassador for Action on Bladder Cancer.
‘She was deeply committed to helping raise awareness about bladder cancer and our thoughts are very much with her family at this time.’