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Superparamagnetic iron oxide nanoparticles have been used for many years as magnetic resonance imaging (MRI) contrast agents or in drug delivery applications. In this study, a novel approach to prepare magnetic polymeric nanoparticles with magnetic core and polymeric shell using inverse microemulsion polymerization process is reported. Poly(ethyleneglycol) (PEG)-modified superparamagnetic iron oxide nanoparticles with specific shape and size have been prepared inside the aqueous cores of AOT/n-Hexane reverse micelles and characterized by various physicochemical means such as transmission electron microscopy (TEM), infrared spectroscopy, atomic force microscopy (AFM), vibrating sample magnetometry (VSM), and ultraviolet/visible spectroscopy. The inverse microemulsion polymerization of a polymerizable derivative of PEG and a cross-linking agent resulted in a stable hydrophilic polymeric shell of the nanoparticles. The results taken together from TEM and AFM studies showed that the particles are spherical in shape with core-shell structure. The average size of the PEG-modified nanoparticles was found to be around 40-50 nm with narrow size distribution. The magnetic measurement studies revealed the superparamagnetic behavior of the nanoparticles with saturation magnetization values between 45-50 electromagnetic units per gram. The cytotoxicity profile of the nanoparticles on human dermal fibroblasts as measured by standard 3-(4,5-dimethylthiazol-2-yl)-2,5-diphenyltetrazolium bromide assay showed that the particles are nontoxic and may be useful for various in vivo and in vitro biomedical applications.