An unusual transient following the short GRB 071227

We present X-ray and optical observations of the short duration gamma-ray burstGRB 071227 and its host at $z=0.381$, obtained using \textit{Swift}, Gemini South and the Very Large Telescope. We identify a short-lived and moderately bright optical transient, with flux significantly in excess of that expected from a simple extrapolation of the X-ray spectrum at 0.2-0.3 days after burst. We fit the SED with afterglowmodels allowing for high extinction and thermal emission models that approximate a kilonovato assess the excess' origins. While some kilonovacontribution is plausible, it is not favoured due to the low temperature and high luminosity required, implying superluminal expansion and a large ejectamass of $\sim 0.1$ M$_{\odot}$. We find, instead, that the transient is broadly consistent with power-law spectra with additional dust extinction of $E(B-V)\sim0.4$ mag, although a possibly thermal excess remains in the \textit{z}-band. We investigate the host, a spiral galaxywith an edge-on orientation, resolving its spectrum along its major axis to construct the galaxy rotation curveand analyse the star formation and chemical properties. The integrated host emission shows evidence for high extinction, consistent with the afterglowfindings. The metallicity and extinction are consistent with previous studies of this host and indicate the galaxy is a typical, but dusty, late-type SGRB host.