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A highly sensitive detection system for magnetic contaminants using a High-Tc superconducting quantum interference device (SQUID) was developed. Finding ultra-small metallic contaminants is a big issue for manufacturers producing commercial products such as lithium ion batteries. When the contamination does occur, the manufacturer of the product suffers a great loss to recall the tainted products. The outer dimension of metallic particles less than 100 microns can not be detected by X-ray imaging, which is commonly used as the inspection method. In most cases, the matrix of industrial products is magnetized and the magnetic signal from the matrix is large enough to mask the signal from contaminants. We developed a detection system based on a high-Tc SQUID gradiometer. A specially designed low noise planar gradiometer for the system was developed. The flux white noise level of the SQUID gradiometer was 8-16 muphi0/Hz1/2 at 1 kHz. Use of the gradiometer and horizontal magnetization could solve problem above. We tested the performances of the system and found that small iron particles as small as 50 mum times 50 mum on the electrode of the lithium ion battery could be clearly detect. This detection level is difficult to achieve using other methods.