We report the results of three-dimensional direct numerical simulations for incompressible viscous fluid in a circular pipe flow with a gradual expansion. At the inlet, a parabolic velocity profile is applied together with a constant finite-amplitude perturbation to represent experimental imperfections. Initially, at low Reynolds number, the solution is steady. As the Reynolds number is increased, the length of the recirculation region near the wall grows linearly. Then, at a critical Reynolds number, a symmetry-breaking bifurcation occurs, where linear growth of asymmetry is observed. Near the point of transition to turbulence, the flow experiences oscillations due to a shear layer instability for a narrow range of Reynolds numbers. At higher Reynolds numbers, the recirculation region breaks into a turbulent state which remains spatially localised and unchanged when the perturbation is removed from the flow. Spatial correlation analysis suggests that the localised turbulence in the gradual expansion possesses a different flow structure from the turbulent puff of uniform pipe flow.