The effect of FeAl phase formation on magnetic, transport, and electronic properties of electron-beam evaporated Fe/Al multilayer samples (MLS), with an overall atomic concentration ratio of Fe:Al=1:1, have been investigated and reported in the present paper using magneto-optical Kerr effect, four-probe resistivity, and valence-band photoelectron spectroscopy techniques. Grazing incidence x-ray diffraction results show that after annealing at 700 K, all the peaks due to Al disappear and those of Fe are slightly shifted with the appearance of new peak at 2θ=31.22° indicating the formation of new crystalline B2FeAl intermetallic phase. The magnetization measurements at this temperature show a large increase in coercivity (Hc) from 21 Oe to 90 Oe, saturation field (Hs) from 80 to 430 Oe, and drastic reduction in magnetization intensity as compared to as-deposited multilayer sample, indicating the precipitation of nonmagnetic B2FeAl phase at the interface. Resistivity increases linearly with temperature and found a maximum at this particular temperature. The corresponding valence-band photoemission measurements carried out on these MLS using hν=134 eV, show that after annealing, the binding energy values of Fe 3d band are shifted towards lower binding energy with corresponding increase in Fe 3d and decrease in Al 3s density of states. These observed changes in the magnetization, resistivity, and valence band behavior after annealing are, therefore, attributed to the transfer of valence Al 3p and Al 3s electrons to minority 3d orbital of Fe, suggesting the strong hybridization of sp-d state at Fermi level - forming B2FeAl intermetallic phase at the interface.