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The effect of variation in the thickness of ion assisted ion beam sputtered MgO spacer layer deposited at oxygen ion assisted energy of 50 eV on the extent of magnetic coupling of NiFe and CoFe layers in Si/NiFe(10 nm)/Mg(1 nm)/MgO(2,4,6 nm)/CoFe(10 nm) sandwich structure is investigated. At MgO spacer layer thickness of 4 nm, the separate reversal of magnetizations of the two ferromagnetic layers is observed in the hystresis loop recorded along easy direction. This results in a 3.5 Oe wide plateau like region during magnetization reversal, which became 4.5 Oe at 6 nm thin MgO. At 2 nm thin MgO, the absence of plateau during magnetization reversal region revealed ferromagnetic coupling between the two ferromagnetic layers, which is understood to arise due to the growth of very thin and low density (1.22 gm/cc) MgO spacer layer, indicating the presence of pinholes as revealed by x-ray reflectometry. After vaccum annealing (200 °C/1 h), the plateau region for 4 and 6 nm thin MgO case decreased to 1.5 Oe and 2.0 Oe, respectively, due to enhanced interface roughness/mixing. In addition, an enhancement of the in-plane magnetic anisotropy is also observed.