We present X-ray and optical observations of the short duration gamma-ray burst GRB 071227 obtained using Swift, Gemini South and the Very Large Telescope. We use image subtraction to identify an optical transient in the r, i and z bands at ~0.26 days before becoming undetectable in subsequent epochs. We find that an extrapolation of the X-ray power law underpredicts both the flux and slope of these optical detections and that the excess is inconsistent with other afterglow mechanisms, such as reverse shocks or a coupled X-ray optical flare as suggested in the case of GRB 050724. We instead find that the most plausible explanation for this excess is the presence of an additional emission component and explore the possibility that this additional component is consistent with a kilonova candidate.