Why was Vatican City created?

AnswerThe papal States were a group of territories in central Italy ruled by the popes from 754 until 1870. They included Vatican City. They were originally given to the papacy by Pepin the Short and reached their greatest extent in 1859. The last papal state the Vatican City was formally established as a separate state by the Lateran Treaty of 1929.

They did not "include Vatican City" but St. Peter's basilica, as the Vatican City State came about when it was "established as a separate state by the Lateran Treaty of 1929".