This invention provides a process that operates within the temperature range 20 to 60 C for the in situ synthesis of a nano sized functionalised ferrofluid, The iron oxide fluids exhibit optimum stability and magnetic properties with negligible residual magnetism as required for biomedical applications, This invention leads to agglomeration free particles of iron oxide phase and the magnetic content can be easily varied, The iron oxide particles exhibit uniform morphology with a narrow size distribution.