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Win Svr 2012 DNS Issues

Running windows server 2012 on server (this is the only server) - has DNS, AD, DHCP running.
Netwrok card on server is configured with IP address 192.168.0.5, Gateway as 192.168.0.1, Prim DNS 192.168.0.5 and Sec DNS 192.168.0.1 - Server gets the internet ok.

When I login to client maching (has been joined to domain) I am unable to get the Internet - at this point the client network adapter has been configured to get IP auto and the DNS auto. The problem are reported as Unable to contact DNS Server or can't find DNS Server. I can see client in DHCP with an IP address.

On client, if I set to get IP auto (and it shows in DHCP) and manually configure Prim DNS 192.168.0.5 and Sec DNS 192.168.0.1 (which happens to be the same as the server) - internet works fine.

I have done some research where it talks about Loopback address 127.0.0.1 but when I use it we have no internet al all.

On Server the BPA comes back with a couple of Errors and a few Warnings - the errors seems to relate to the loopback either in the wrong place or not being used. Needless to say I am getting confused by different BPA messages depending on what I use.

I have tried this with clients using Win8 and Win7 - same result.

Any help appreciated.
Regards Gary
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Sajid Shaik M
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DHCP Scope Option is already set to 192.168.0.5 (servers IP) also being used as DNS 1.

I had to add to DNS the forwarder as you suggested as 192.168.0.1.

removed 2nd DNS setting from NW adapter as you suggested.

Guess What? It works fine.

Thanks very much.