Abstract: A system for recovering fiber from sludge by-products generated in a pulp and paper mill. Initially, heavy materials are separated from a sludge flow, with the flow thereafter separated into first and second components. High grade fiber is recovered from the first component by centrifugal cleaners and also by optional fine pressure screens. The second component is forwarded to a refiner which breaks-down the second component to form a low grade pulp. In addition, after removal of the high grade fiber, remnants from the first component flow are forwarded to an additional separator such as a liquid cyclone, which removes sand, grit and ash, and thereafter the remnants of the first component can be sent to the refiner for forming a low grade pulp. Thus, the sludge is essentially separated into four components including: (1) high grade pulp; (2) low grade pulp; (3) heavy materials; and (4) sand, grit and ash.